<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------
NEW USTC HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK TO BE APPLIED FOR
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
114 WEST 47TH STREET 10036
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (212) 852-1000
------------------
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
TO BE SO REGISTERED
Common Stock, par value of $1 per share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
NEW USTC HOLDINGS CORPORATION
PART I
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
- ------------------------------------------------ ---------------------------------------------
<C> <S> <C>
1. Business.................................. "INTRODUCTION"; "SUMMARY"; "SPECIAL FACTORS";
"THE COMPANY"; "THE DISTRIBUTION";
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERA-
TIONS"; AND "RECENT DEVELOPMENTS".
2. Financial Information..................... "CAPITALIZATION"; "PRO FORMA CONDENSED
FINANCIAL STATEMENTS"; "PRO FORMA CONDENSED
STATEMENT OF CONDITION"; "PRO FORMA CONDENSED
STATEMENT OF INCOME"; "NOTES TO PRO FORMA
CONDENSED FINANCIAL STATEMENTS"; "SELECTED
FINANCIAL DATA"; "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS"; AND "RECENT DEVELOPMENTS".
3. Properties................................ "THE COMPANY".
4. Security Ownership of Certain Beneficial
Owners and Management................... "MANAGEMENT"; "BENEFICIAL OWNERSHIP"; AND
"EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER
THE DISTRIBUTION".
5. Directors and Executive Officers.......... "MANAGEMENT".
6. Executive Compensation.................... "MANAGEMENT" AND "EXECUTIVE COM-
PENSATION PLANS IN EFFECT AFTER THE
DISTRIBUTION".
7. Certain Relationships and Related
Transactions............................ "SUMMARY"; "SPECIAL FACTORS"; "THE
DISTRIBUTION"; "RELATIONSHIP WITH CHASE"; AND
"MANAGEMENT".
8. Legal Proceedings......................... "SPECIAL FACTORS" AND "THE COMPANY".
9. Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters............. "SUMMARY"; "SPECIAL FACTORS"; "THE
DISTRIBUTION"; AND "LISTING AND TRADING OF
COMPANY COMMON STOCK".
10. Recent Sales of Unregistered Securities... "THE COMPANY".
11. Description of Registrant's Securities to
be Registered........................... "DESCRIPTION OF CAPITAL STOCK OF THE
COMPANY".
12. Indemnification of Directors and
Officers................................ "MANAGEMENT" AND "DESCRIPTION OF CAPITAL
STOCK OF THE COMPANY".
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
- ------------------------------------------------ ---------------------------------------------
<C> <S> <C>
13. Financial Statements and Supplementary
Data.................................... "CAPITALIZATION"; "PRO FORMA CONDENSED
FINANCIAL STATEMENTS"; "PRO FORMA CONDENSED
STATEMENT OF CONDITION"; "PRO FORMA CONDENSED
STATEMENT OF INCOME"; "NOTES TO PRO FORMA
CONDENSED FINANCIAL STATEMENTS"; "SELECTED
FINANCIAL DATA"; "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS"; AND "RECENT DEVELOPMENTS".
14. Disagreements with Accountants on
Accounting and Financial Disclosure..... Not Applicable.
15. Financial Statements and Exhibits......... "INDEX TO COMBINED FINANCIAL STATEMENTS" AND
"FINANCIAL STATEMENTS" (See Part II).
</TABLE>
<PAGE> 4
INFORMATION STATEMENT RELATING TO
NEW USTC HOLDINGS CORPORATION
AND THE DISTRIBUTION
INTRODUCTION
This Information Statement is being furnished to stockholders of U.S. Trust
Corporation, a New York corporation ("UST"), in connection with the contemplated
pro rata distribution (the "Distribution") to UST stockholders of shares of
common stock, par value $1.00 per share ("Company Common Stock"), of New USTC
Holdings Corporation, a New York corporation and wholly owned subsidiary of UST
(the "Company"). The holders of UST common stock, par value $1.00 per share
("UST Common Stock"), will receive one share of Company Common Stock with
respect to each share of UST Common Stock held by such holder on the record date
for the Distribution (the "Distribution Record Date"). The Distribution will
result in 100% of the outstanding shares of Company Common Stock being
distributed to UST stockholders on a share-for-share basis. The Distribution is
being effected by UST in connection with the acquisition by The Chase Manhattan
Corporation, a Delaware corporation ("Chase"), of UST's securities processing
business and related back office operations, including the assets and certain
liabilities related thereto (the "Chase Acquired Business"), pursuant to a
merger (the "Merger") of UST with and into Chase following the Distribution.
At the time of the Distribution, the Company will own all of UST's
businesses, assets and liabilities, other than the Chase Acquired Business
(collectively, the "Core Businesses"). Immediately prior to the time the
Distribution is effected (the "Time of Distribution"), the Core Businesses,
which include UST's asset management, private banking, special fiduciary,
corporate trust and other non-processing businesses, will be transferred to the
Company by UST in accordance with (i) the Contribution and Assumption Agreement
to be entered into prior to the Time of Distribution between United States Trust
Company of New York, a New York bank and trust company and a wholly owned
subsidiary of UST ("USTNY"), and New U.S. Trust Company of New York, a recently
organized entity that at the Time of Distribution will be a New York bank and
trust company and a wholly owned subsidiary of the Company ("New Trustco"), the
form of which is an Exhibit to the Company Form 10 (as defined below) of which
this Information Statement forms a part and which is attached as Appendix C to
the Proxy Statement-Prospectus (the "Proxy Statement-Prospectus") filed by UST
and Chase in connection with the Distribution and the Merger (as such form may
be amended, supplemented or otherwise modified from time to time, the
"Contribution Agreement"), and (ii) the Agreement and Plan of Distribution to be
entered into prior to the Distribution between UST and the Company, the form of
which is an Exhibit to the Company Form 10 and which is attached as Appendix B
to the Proxy Statement-Prospectus (as such form may be amended, supplemented or
otherwise modified from time to time, the "Distribution Agreement"). This
Information Statement is attached as Appendix H to the Proxy
Statement-Prospectus. See "The Company".
No consideration will be paid by UST stockholders for the shares of Company
Common Stock to be received by them in the Distribution. There is currently no
public trading market for the shares of Company Common Stock. The Company
intends to apply for designation of the Company Common Stock as a national
market security on the NASDAQ National Market System (the "National Market
System").
The Distribution has not yet been declared by the UST Board of Directors
(the "UST Board"), and, accordingly, the Distribution Record Date has not yet
been determined. The Distribution is conditioned on, among other things, the
satisfaction of all conditions (other than consummation of the Distribution) to
the parties' obligations to consummate the Merger provided for in the Agreement
and Plan of Merger, dated as of November 18, 1994 (as it may be amended,
supplemented or otherwise modified from time to time, the "Merger Agreement"),
among UST and Chase, which is attached as Appendix A to the Proxy Statement-
Prospectus to which this Information Statement is attached as Appendix H. See
"The Distribution -- Terms of the Distribution Agreement -- Conditions to the
Distribution". Also see "The Merger -- Conditions" in the Proxy
Statement-Prospectus to which this Information Statement is attached as Appendix
H.
The Company has filed a Registration Statement on Form 10 (including
exhibits and amendments thereto, the "Company Form 10") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), covering
shares of Company Common Stock to be received by UST stockholders in the
Distribution. This Information Statement constitutes both Appendix H to the
Proxy Statement-Prospectus and a part of the Company Form 10.
The date of this Information Statement is February 9, 1995.
1
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION......................... 1
SUMMARY.............................. 3
The Company........................ 3
The Transactions................... 3
The Distribution................... 4
SPECIAL FACTORS...................... 7
Business To Be Conducted by the
Company......................... 7
Dividends and Dividend Policy...... 7
Relationship with Chase; Reliance
on Services Agreement........... 7
Absence of Trading Market.......... 8
Lack of Historical Information..... 8
Reliance on Key Personnel.......... 8
Competition........................ 8
Government Monetary Policies....... 8
Bank Holding Company Act of 1956... 9
Other Federal and State Banking
Regulation...................... 9
Substantial Stockholders; Certain
Charter Provisions.............. 10
THE COMPANY.......................... 11
General............................ 11
Regulatory Matters................. 13
Future Conduct of the Business..... 16
Employees.......................... 16
Properties......................... 16
Legal Matters...................... 17
THE DISTRIBUTION..................... 17
Background of and Reasons for the
Distribution.................... 17
Terms of the Contribution
Agreement....................... 18
Terms of the Distribution
Agreement....................... 22
Terms of the Post Closing Covenants
Agreement....................... 24
Terms of the Tax Allocation
Agreement....................... 27
Certain Federal Income Tax
Consequences.................... 28
RELATIONSHIP WITH CHASE.............. 28
Post Closing Covenants Agreement;
Tax Allocation Agreement........ 28
Services Agreement................. 28
LISTING AND TRADING OF COMPANY COMMON
STOCK.............................. 30
CAPITALIZATION....................... 31
PRO FORMA CONDENSED FINANCIAL
STATEMENTS......................... 32
PRO FORMA CONDENSED STATEMENT OF
CONDITION.......................... 33
PRO FORMA CONDENSED STATEMENT OF
INCOME............................. 34
PRO FORMA CONDENSED STATEMENT OF
AVERAGE BALANCES................... 36
NOTES TO PRO FORMA CONDENSED
FINANCIAL STATEMENTS............... 37
SELECTED FINANCIAL DATA.............. 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 42
Results of Operations.............. 42
Financial Condition................ 54
Asset Quality...................... 59
Accounting Standards Not Yet
Adopted......................... 60
RECENT DEVELOPMENTS.................. 61
MANAGEMENT........................... 65
Directors.......................... 65
Committees of the Board of
Directors....................... 68
Compensation of Directors.......... 69
Executive Officers................. 70
Executive Compensation............. 71
BENEFICIAL OWNERSHIP................. 73
EXECUTIVE COMPENSATION PLANS IN
EFFECT AFTER THE DISTRIBUTION...... 75
Retirement Benefits................ 76
401(k) Plan and ESOP............... 77
Annual Incentive Awards............ 78
New Stock Options.................. 78
Other Features of Stock Plan and
Predecessor Performance Plans... 79
Executive Deferred Compensation
Plan............................ 82
Change in Control Provisions....... 82
Benefit Protection Trusts.......... 83
DESCRIPTION OF CAPITAL STOCK OF THE
COMPANY............................ 84
Authorized Capital Stock........... 84
Company Common Stock............... 84
Preferred Stock.................... 85
Stockholders Rights Plan........... 85
No Preemptive Rights............... 88
Description of Certain Statutory,
Charter and Bylaw Provisions.... 89
Indemnification and Insurance...... 90
ADDITIONAL INFORMATION............... 91
INDEX OF DEFINED TERMS............... 92
APPENDIX I -- RESTATED CERTIFICATE OF
INCORPORATION OF NEW USTC HOLDINGS
CORPORATION........................ I-1
APPENDIX II -- RESTATED BY-LAWS OF
NEW USTC HOLDINGS CORPORATION...... II-1
</TABLE>
2
<PAGE> 6
SUMMARY
The following summarizes certain information contained elsewhere in this
Information Statement. Reference is made to, and this Summary is qualified in
its entirety by, the more detailed information included elsewhere in this
Information Statement, which should be read in its entirety. This Information
Statement is a part of the Company Form 10 and is attached as Appendix H to the
Proxy Statement-Prospectus dated February 9, 1995, of UST and Chase relating to
the Merger of UST with and into Chase, with Chase as the surviving entity. See
"Summary -- The Transactions" below. The Company did not participate in the
preparation of the Proxy Statement-Prospectus, and does not have independent
knowledge of the matters set forth therein, except to the extent the Proxy
Statement-Prospectus contains excerpts from this Information Statement without
material change. Immediately prior to the Distribution described herein, the
Company expects to effect a recapitalization pursuant to which the 100 shares of
common stock of the Company currently outstanding will be exchanged for a total
number of shares of Company Common Stock equal to the total number of shares of
UST Common Stock outstanding as of the Distribution Record Date. See
"Description of the Capital Stock of the Company". Based on the number of shares
of UST Common Stock outstanding on February 1, 1995 (and assuming the exercise
of stock options for 132,691 shares of UST Common Stock prior to the Time of
Distribution), it is estimated that approximately 9,622,000 shares of Company
Common Stock will be distributed to UST stockholders in the Distribution. AN
INDEX OF DEFINED TERMS USED HEREIN IS INCLUDED AT PAGE 92 OF THIS INFORMATION
STATEMENT.
For financial reporting purposes, the Company is a "successor registrant"
to UST and, as a result, all historical financial information of the Company
included in this Information Statement is the historical financial information
of UST. See "Pro Forma Condensed Financial Statements" for pro forma financial
statements for the Company giving effect to the disposition of the Chase
Acquired Business pursuant to the Distribution and the Merger.
THE COMPANY
The Company is a newly formed New York corporation that at the Time of
Distribution will be a bank holding company. At the Time of Distribution, the
Company's businesses, assets and liabilities will consist of the Core
Businesses, which include UST's asset management, private banking, special
fiduciary and corporate trust businesses. The Company will conduct the Core
Businesses primarily through New Trustco, a recently organized entity that at
the Time of Distribution will be a New York bank and trust company and a wholly
owned subsidiary of the Company. The Company was organized in New York in
January 1995. The mailing address of the Company's principal executive offices
is 114 West 47th Street, New York, New York 10036. See "The Company".
THE TRANSACTIONS
The Company is currently a wholly owned subsidiary of UST. UST has entered
into the Merger Agreement whereby, upon the terms and subject to the conditions
set forth therein, UST (which will then hold only the Chase Acquired Business)
will be merged with and into Chase, with Chase as the surviving entity.
Immediately prior to the Merger, the Core Businesses will be transferred to the
Company and subsidiaries of the Company (the "Internal Reorganization"), and all
the then outstanding shares of Company Common Stock will be distributed to the
then current stockholders of UST in the Distribution on the basis of one share
of Company Common Stock for each share of UST Common Stock. See "The
Distribution". At the Time of Distribution, the Company will assume the name
"U.S. Trust Corporation" and its then principal subsidiary, New Trustco, will
assume the name "United States Trust Company of New York". As a consequence of
the Merger, the Chase Acquired Business will be owned by Chase. Accordingly, UST
stockholders immediately prior to the Merger will retain their proportionate
equity interests in UST's Core Businesses in the form of stock in the Company,
which will acquire the Core Businesses prior to the Distribution.
3
<PAGE> 7
Pursuant to the Merger Agreement, at the effective time of the Merger (the
"Effective Time") each issued and outstanding share of UST Common Stock (other
than any shares of UST Common Stock owned by Chase or any wholly owned
subsidiary of Chase or UST (other than in a fiduciary, custodial or similar
capacity) or any shares held by stockholders of UST who perfect their right,
under New York law, to dissent to the Merger) will be converted into the right
to receive Chase common stock, par value $2.00 per share ("Chase Common Stock"),
as described under "The Merger -- Terms of the Merger" in the Proxy
Statement-Prospectus.
Each of Chase, UST and USTNY, on the one hand, and the Company and New
Trustco, on the other hand, will agree, pursuant to the Post Closing Covenants
Agreement to be entered into prior to the Distribution by such parties, the form
of which is filed as an Exhibit to the Company Form 10 and which is attached as
Appendix D to the Proxy Statement-Prospectus (as such form may be amended,
supplemented or otherwise modified from time to time, the "Post Closing
Covenants Agreement"), to indemnify each other after the Distribution with
respect to certain losses, damages, claims and liabilities arising primarily
from the conduct of the Chase Acquired Business. See "The Distribution -- Terms
of the Post Closing Covenants Agreement". In addition, each of UST and the
Company will agree, pursuant to the Tax Allocation Agreement to be entered into
prior to the Distribution between Chase, UST and the Company, the form of which
is filed as an Exhibit to the Company Form 10 and which is attached as Appendix
E to the Proxy Statement-Prospectus (as such form may be amended, supplemented
or otherwise modified from time to time, the "Tax Allocation Agreement"), to
indemnify the other against certain tax liabilities. The Contribution Agreement,
the Distribution Agreement, the Post Closing Covenants Agreement and the Tax
Allocation Agreement, which are Exhibits to the Company Form 10 and are attached
as Appendix B through Appendix E to the Proxy Statement-Prospectus, are referred
to collectively herein as, the "Distribution Documents".
The foregoing is a brief summary of certain terms of the Distribution. The
Distribution Documents are more fully described herein under "The Distribution".
A description of the Merger and the Merger Agreement may be found in the Proxy
Statement-Prospectus to which this Information Statement is attached as Appendix
H.
THE DISTRIBUTION
Distributing Company....... UST
Securities to be
Distributed................ All the outstanding shares of Company Common Stock.
Based on the number of shares of UST Common Stock
outstanding as of February 1, 1995 (and assuming
the exercise of stock options for 132,691 shares of
UST Common Stock prior to the Time of
Distribution), it is estimated that approximately
9,622,000 shares of Company Common Stock will be
distributed to UST stockholders in the
Distribution. See "Distribution Ratio" immediately
below.
Distribution Ratio......... One share of Company Common Stock for each share of
UST Common Stock outstanding on the Distribution
Record Date.
Time of Distribution....... The Distribution is expected to be effective
immediately prior to the Effective Time. Stock
certificates for shares of Company Common Stock
will be mailed as soon as practicable after the
Time of Distribution. See "The
Distribution -- Terms of the Distribution
Agreement -- Method of Effecting the Distribution".
Distribution Record Date... It is expected that the Distribution Record Date
will be established as the date on which the Time
of Distribution occurs.
4
<PAGE> 8
Trading Market............. The Company expects to apply for designation of the
Company Common Stock as a national market security
on the National Market System. See "Listing and
Trading of Company Common Stock".
Conditions to
Distribution............... Consummation of the Distribution is subject to the
conditions set forth in the Distribution Agreement.
See "The Distribution -- Terms of the Distribution
Agreement -- Conditions to the Distribution".
Tax Consequences........... It is a condition to the Distribution that UST
receive a private letter ruling (the "Private
Letter Ruling") from the Internal Revenue Service
(the "Service"), reasonably satisfactory in form
and substance to UST and Chase, that, among other
things, the receipt of Company Common Stock by UST
stockholders pursuant to the Distribution will be
tax free for Federal income tax purposes. See "The
Distribution -- Certain Federal Income Tax
Consequences".
Dividends After the
Distribution............. As a bank holding company, the Company will be
dependent upon distributions from its subsidiaries
in order to pay cash dividends. Because New Trustco
will be a newly organized bank subsidiary of the
Company, it is not anticipated that it will be able
to pay dividends other than out of its earnings in
respect of periods after the Time of Distribution.
Federal and state regulatory agencies also have the
authority to limit further the Company's banking
subsidiaries' payment of dividends based on other
factors, such as the maintenance of adequate
capital for such banking subsidiaries. The Company
currently anticipates that its annual cash dividend
will be approximately $1.00 per share. The timing
and amount of any future dividends, however, will
depend on circumstances existing at the time,
including earnings, cash requirements, applicable
federal and state laws and regulations and policies
and other factors deemed relevant by the Company's
Board of Directors (the "Company Board"), including
the amount of dividends payable to the Company by
its subsidiary banks. See "Special
Factors -- Dividends and Dividend Policy".
Certain Provisions of the
Company's Charter and
Bylaws................... Certain provisions of the Company's Certificate of
Incorporation, as it is anticipated to be amended
and restated prior to the Distribution
substantially as set forth in the form of the
Restated Certificate of Incorporation of the
Company attached to this Information Statement as
Appendix I (as so amended and restated, the
"Restated Certificate"), and the Company's Bylaws,
as they are anticipated to be amended and restated
prior to the Distribution substantially as set
forth in the form of the Restated Bylaws of the
Company attached to this Information Statement as
Appendix II (as so amended and restated, the
"Restated Bylaws"), may be deemed to have the
effect of making difficult an acquisition of
control of the Company in a transaction not
approved by the Company Board. See "Special
Factors -- Substantial Stockholders; Certain
Charter Provisions" and "Description of Capital
Stock of the Company -- Description of Certain
Statutory, Charter and Bylaw Provisions".
Relationship with Chase
After the Distribution..... In the Post Closing Covenants Agreement, Chase, UST
and USTNY, on the one hand, and the Company and New
Trustco, on the other hand, will agree to certain
indemnification provisions arising primarily from
the conduct of the Chase Acquired Business. The
Company also will agree
5
<PAGE> 9
to abide by certain noncompetition provisions
relating to competing with Chase in the securities
processing business. In addition, at the Time of
Distribution, New Trustco will enter into a
services agreement (the "Services Agreement") with
a subsidiary of Chase pursuant to which such
subsidiary will agree to furnish necessary
securities processing, custodial, data processing
and other services to New Trustco and its
affiliates. See "Special Factors -- Relationship
with Chase; Reliance on Services Agreement", "The
Distribution -- Terms of the Post Closing Covenants
Agreement" and "Relationship with Chase".
Special Factors............ Stockholders should carefully consider the matters
discussed under the section entitled "Special
Factors" in this Information Statement.
6
<PAGE> 10
SPECIAL FACTORS
BUSINESS TO BE CONDUCTED BY THE COMPANY
Immediately prior to the Time of Distribution, the Core Businesses will be
transferred to, and will comprise all of the businesses, assets and liabilities
of, the Company. The businesses, assets and liabilities of the Company will not
include the Chase Acquired Business, which accounted for approximately $113.9
million, or 37%, of UST's consolidated revenues for the nine months ended
September 30, 1994. As a result, the Company will be substantially smaller than
UST and will derive its revenues from a less diverse group of businesses and
assets. While the Company intends to pursue strategies to expand its businesses,
there can be no assurance that the Company will be successful in implementing
such strategies or that, if implemented, such strategies will result in the
growth of the Company's businesses.
DIVIDENDS AND DIVIDEND POLICY
As a bank holding company, the Company will be dependent upon distributions
from its subsidiaries in order to pay cash dividends. Because New Trustco will
be a newly organized bank subsidiary of the Company, it is not anticipated that
it will be able to pay dividends other than out of its earnings in respect of
periods after the Time of Distribution. Federal and state regulatory agencies
also have the authority to limit further the Company's banking subsidiaries'
payment of dividends based on other factors, such as the maintenance of adequate
capital for such banking subsidiaries. The Company currently anticipates that
its annual cash dividend will be approximately $1.00 per share. The timing and
amount of any future dividends, however, will depend on circumstances existing
at the time, including earnings, cash requirements, applicable federal and state
laws and regulations and policies and other factors deemed relevant by the
Company Board, including the amount of dividends payable to the Company by its
subsidiary banks.
RELATIONSHIP WITH CHASE; RELIANCE ON SERVICES AGREEMENT
In the Post Closing Covenants Agreement and the Tax Allocation Agreement,
Chase, UST and USTNY, on the one hand, and the Company and New Trustco, on the
other hand, will agree to indemnify each other after the Distribution with
respect to certain losses, damages, claims and liabilities arising primarily
from the conduct of the Chase Acquired Business, as well as certain tax
liabilities. See "The Distribution -- Terms of the Post Closing Covenants
Agreement" and "-- Terms of the Tax Allocation Agreement". In addition, the
Company has agreed, pursuant to the Post Closing Covenants Agreement, for a
period of four years after the Effective Time, not to engage in, or compete with
Chase with respect to, the securities processing business, subject to certain
limited exceptions. See "The Distribution -- Terms of the Post Closing Covenants
Agreement -- The Company's Noncompetition Agreement".
As part of the Merger, Chase will acquire UST's related back office
operations. Immediately prior to the Effective Time, Chase's principal bank
subsidiary and New Trustco will enter into the Services Agreement pursuant to
which such subsidiary will furnish necessary securities processing, custodial,
data processing and other services to New Trustco and its affiliates. The
initial term of the Services Agreement will be for five years beginning on the
date of consummation of the Merger (the "Closing Date"), with certain renewal
options. In consideration of the services provided to it under the Services
Agreement, during the initial term, New Trustco will pay to Chase's subsidiary
an annual base fee of $10 million, which is significantly less than New
Trustco's estimate of the annual cost of providing such services to itself. See
"Relationship with Chase".
The Company will have minimal securities processing or back office
capabilities and will rely entirely on Chase to provide such services under the
Services Agreement, including bank processing services for the Company's private
banking clients and custodial and processing services for the Company's asset
and investment management clients. The Company's goodwill and its relationship
with its clients and customers could be adversely affected by any failure or
inability of Chase to provide the level of services required by the Services
Agreement.
7
<PAGE> 11
ABSENCE OF TRADING MARKET
There is no existing trading market for the Company Common Stock and there
can be no assurance as to the establishment or continuity of any such market.
The Company expects to apply for designation of the Company Common Stock as a
national market security on the National Market System and such listing, or
listing on the American Stock Exchange or the New York Stock Exchange, is a
condition to consummation of the Distribution. However, there can be no
assurance as to the price at which the Company Common Stock will trade or that
such price will not be significantly below the book value per share of the
Company Common Stock.
LACK OF HISTORICAL INFORMATION
The Company is a newly formed corporation that currently has no operations.
Immediately prior to the Time of Distribution, the businesses, assets and
liabilities of the Company will consist solely of the Core Businesses. For
financial reporting purposes, the Company is a "successor registrant" to UST
and, as a result, the historical financial information of the Company is the
historical financial information of UST. There is no historical information for
the Company on a stand-alone basis that excludes the financial results of the
Chase Acquired Business. The Company expects to begin reporting such information
commencing with its quarterly report for the fiscal quarter ending June 30,
1995.
RELIANCE ON KEY PERSONNEL
The Company's business is managed by key executive officers, the loss of
whom could have a material adverse effect on the Company. The Company believes
that its continued success will depend in large part on its ability to attract
and retain highly skilled and qualified personnel. The Company's management has
principal responsibility for the review of the Company's strategic plan and for
recommendations to the Company Board, which exercises final authority over major
business decisions. Therefore, the Company is dependent upon the ability of its
management to select what it believes are appropriate business opportunities
(including acquisitions) for the Company. In the event that any officers or
directors of the Company cease to be associated with the Company, the Company
will seek to find a qualified person or persons to fill their positions. There
can, however, be no assurance that such individuals could be engaged by the
Company. See "Management".
COMPETITION
The Company's asset management and private banking businesses will compete
with investment counselling firms and with investment bankers and brokers which
offer advisory services and, to some extent, with mutual funds. The trust and
agency business is also highly competitive. Many commercial banks, with larger
capitalizations and deposits, and several smaller specialized banks throughout
the country provide similar fiduciary services.
In both its private banking and its corporate trust activities, the Company
will operate in an intensely competitive environment, both as to service and
price, with other banks principally in the New York metropolitan area,
California, Florida, Texas and the Pacific Northwest.
GOVERNMENT MONETARY POLICIES
Monetary authorities have a significant impact on the operating results of
the Company and other financial service institutions. The decisions of the Board
of Governors of the Federal Reserve System (the "Board of Governors") affect the
supply of money and member bank reserves by means of open market operations in
U.S. Government securities or by changes in the discount rate or reserve
requirements. The Board of Governors' actions have an important influence on the
growth of bank loans and investments and the level of interest charged for loans
and paid on deposits. Because of changing conditions in the money markets, as a
result of actions by the Board of Governors and other regulatory authorities,
interest rates, credit availability, deposit levels and bond and stock prices
may change materially due to circumstances beyond the control of the Company.
8
<PAGE> 12
BANK HOLDING COMPANY ACT OF 1956
At the Time of Distribution, the Company will be a bank holding company
within the meaning of the Federal Bank Holding Company Act of 1956, as amended
(the "Bank Holding Company Act"), and will be so registered with the Board of
Governors. As such, the Company will be required to file with the Board of
Governors annual reports and other information and is subject to examination
regarding its business operations and those of its subsidiaries. Further, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with the extension of credit or provision of
any property or service.
The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Board of Governors before acquiring substantially all
the assets of any bank or before acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any bank which is not already
majority-owned. Until September 29, 1995, the Bank Holding Company Act prohibits
the acquisition by a bank holding company of shares of a bank located outside
the state in which the operations of its banking subsidiaries are principally
conducted, unless such an acquisition is specifically authorized by a statute of
the state in which the bank to be acquired is located. The Bank Holding Company
Act also prohibits a bank holding company, with certain exceptions, from
acquiring more than 5% of the voting shares of any company which is not a bank
and from engaging in any business other than banking or managing or controlling
banks or furnishing services to or performing services for its subsidiary banks.
One of the exceptions to this prohibition is engaging in, or acquiring shares of
a company that engages in, activities which the Board of Governors has
determined to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Under current regulations, bank holding
companies and their subsidiaries are permitted to engage in such banking and
banking-related businesses as equipment leasing, computer service bureau
operations, acting as investment or financial adviser, performing fiduciary,
agency and custodial services, certain types of real estate financing and
providing management consulting advice to non-affiliated banks.
In approving acquisitions by bank holding companies of banks and companies
engaged in banking-related activities, the Board of Governors considers a number
of factors, including the expected benefits to the public such as greater
convenience, increased competition or gains in efficiency, as weighed against
the risks or possible adverse effects such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices. The Board of Governors is also empowered to differentiate between
activities commenced de novo and activities commenced through acquisition of a
going concern. The Board of Governors may order a bank holding company to
terminate any activity or its ownership or control of a nonbank subsidiary if
the Board of Governors finds that such activity or ownership or control
constitutes a serious risk to the financial safety, soundness or stability of a
subsidiary bank and is inconsistent with sound banking principles or statutory
purposes.
OTHER FEDERAL AND STATE BANKING REGULATION
The Superintendent of Banks of the State of New York has the discretion to
examine the affairs of the Company for the purpose of determining the financial
condition of New Trustco. Prior to the Time of Distribution, New Trustco and its
operations will be subject to Federal and New York State laws applicable to
commercial banks and trust companies and to regulation and examination by both
Federal and New York banking authorities. Government regulations affecting New
Trustco and its operations will include minimum capital requirements, the
requirement to maintain reserves against deposits, restrictions on the nature
and amount of loans which may be made by New Trustco and restrictions relating
to investments and other activities.
New York banks are barred from acting as a fiduciary in a number of states,
and in a number of other states where they may and do act as a fiduciary, their
activities are limited by state law and regulations.
The Company, through its ownership of a savings bank in Florida, will be a
savings bank holding company. Accordingly, the Company and such savings bank
will be subject to regulation and examination by the Office of Thrift
Supervision. The banking institutions that will be subsidiaries of the Company
in California and Texas are subject to regulation and examination by the Office
of the Comptroller of the
9
<PAGE> 13
Currency. The banking institution that will be the Company's New Jersey
subsidiary is subject to regulation and examination by the Banking Department of
the State of New Jersey. The banking institution that will be the Company's
Oregon subsidiary is subject to regulation and examination by the Division of
Finance and Corporate Securities of the State of Oregon.
The Federal Reserve Act and the Federal Deposit Insurance Act impose
certain restrictions on loans by the bank subsidiaries to the Company and each
other. In addition, the Company and its subsidiaries are subject to restrictions
imposed by the Banking Act of 1933 with respect to engaging in certain aspects
of the securities business.
SUBSTANTIAL STOCKHOLDERS; CERTAIN CHARTER PROVISIONS
Immediately following the Distribution, directors and executive officers of
the Company will (assuming the exercise of stock options for 67,975 shares of
UST Common Stock prior to the Time of Distribution) beneficially own shares of
Company Common Stock representing over 3.1% of the voting power of all the
Company's then outstanding voting securities. In addition, immediately following
the Distribution, the 401(k) Plan and ESOP of United States Trust Company of New
York and Affiliated Companies (the "401(k) Plan and ESOP") will beneficially own
shares of Company Common Stock representing over 14.5% of the voting power of
all the Company's then outstanding voting securities. In addition, following the
Merger, the 401(k) Plan and ESOP will, over a period of time, sell shares of
Chase Common Stock it receives in connection with the Merger, and will purchase
shares of Company Common Stock in the open market with the proceeds from the
sale of such shares. See "Beneficial Ownership".
Certain provisions of the Restated Certificate and the Restated Bylaws may
be deemed to have the effect of making difficult an acquisition of control of
the Company in a transaction not approved by the Company Board. These provisions
include the ability of the Company Board to issue shares of preferred stock in
one or more series without further authorization of the Company stockholders and
certain other provisions described under "Description of Capital Stock of the
Company". Many of these provisions are also present in UST's certificate of
incorporation and bylaws as currently in effect, and generally are designed to
permit the Company to develop its businesses and foster its long-term growth
without the disruption caused by the threat of a takeover not deemed by the
Company Board to be in the best interests of the Company and its stockholders.
These provisions may also have the effect of discouraging a third party from
making a tender offer or otherwise attempting to obtain control of the Company
even though such a transaction might be economically beneficial to the Company
and its stockholders. Furthermore, the Company intends, in connection with the
Distribution, to adopt a stockholder rights plan, which may have a similar
effect. See "Description of Capital Stock of the Company -- Stockholder Rights
Plan".
10
<PAGE> 14
THE COMPANY
GENERAL
The Company is a newly formed New York corporation that at the Time of
Distribution will be a bank holding company. At the Time of Distribution, the
Company will own the Core Businesses, which include UST's asset management,
private banking, special fiduciary and corporate trust businesses. The Company
will conduct the Core Businesses primarily through New Trustco, a recently
organized entity that at the Time of Distribution will be a New York bank and
trust company and a wholly owned subsidiary of the Company.
The Company was organized in New York in January 1995 and, pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), issued 100 shares of common stock, par value
$1.00 per share, to UST on January 23, 1995 for par value. The Company is
currently a wholly owned subsidiary of UST.
Set forth below is a description of UST's businesses that will be
transferred to the Company immediately prior to the Time of Distribution.
Asset Management and Private Banking
UST's principal business is providing asset management services to
individuals, families and institutions and private banking.
In the personal asset management and private banking business, UST's
primary focus is the top 2% wealthiest Americans, those with over $200,000 in
income or $450,000 in investable assets. UST believes (based on syndicated
market research studies conducted by Payment Systems, Inc., an independent
research firm) that this market is growing at 14% to 20% annually and that less
than one-third of the assets in this market are professionally managed. The
personal asset management and private banking business is highly competitive and
comprised of a wide variety of institutions vying for business, including
banking institutions, brokerage firms, investment management companies and
mutual fund companies. No one competitor dominates this market. UST believes
that it differentiates itself from its competitors by providing both investment
management and comprehensive wealth management services. UST's full range of
investment management services for the affluent includes U.S. and international
equities, fixed-income, balanced portfolios, alternative investments, mutual
funds and 401(k) plans. UST also provides private banking, trust and fiduciary
services, estate and tax planning, financial planning, custody, insurance
services and consolidated record keeping.
UST has divided its personal market into three segments and tailored its
products and service delivery to each. Its primary market consists of
individuals with $2 million to $50 million in assets. Investment portfolios for
this market segment are generally individually managed and require the use of a
number of UST's services. UST is currently expanding its line of products for
this market segment by adding a variable annuity product and a venture capital
fund.
For the second segment of UST's personal market -- those customers with
$250,000 to $2 million in assets -- UST provides investment management services,
principally through the "UST Master Fund" family of 25 mutual funds. UST's
"Wealth Management Account" assets now total over $600 million with an average
account balance size of $650,000. UST's private banking services are also
responsible for attracting this portion of UST's market, comprised of generally
younger, earned wealth customers whose assets are expected to grow over time.
The third segment of UST's personal market includes families with over $50
million in assets. UST currently serves well over 100 such families. To help
meet the increasingly sophisticated and complex needs of these families, UST
acquired CTC Consulting, Inc. ("CTC") in July of 1993. CTC provides independent
counseling on investment policy, manager selection and performance measurement.
UST offers an enhanced master custody product for this market, as well as
specialized consulting services for family-owned businesses. UST has also
expanded its family office capabilities to serve clients in this market.
11
<PAGE> 15
A major strategic goal of UST's personal asset management and private
banking business for over a decade has been national expansion. Personal asset
management and private banking clients usually require service to be provided at
the local level. Expanding beyond its New York City headquarters to meet these
demands, UST has established offices nationwide in areas UST believes are
comprised of concentrated wealth: California, Connecticut, Florida, New Jersey,
Texas and the Pacific Northwest. UST's future goals include expansion in those
regions where UST currently provides asset management services and in other
areas of wealth concentration and creation.
UST's institutional asset management business provides a wide range of
investment management services directly to institutional clients: domestic and
international equity, fixed-income, money market and balanced portfolios, as
well as structured investments, index funds, alternative investments and cash
management.
UST has placed increased emphasis on the sales effort supporting the
personal asset management business, including in recent years a three-fold
increase in the size of its sales force and the implementation a decade ago of a
generous sales incentive program for all employees. In addition, UST possesses a
dedicated sales force committed to the institutional asset management business.
UST believes providing its investment management services through
third-party distribution channels is an increasingly important aspect of its
asset management business. UST is broadening the distribution of its UST Master
Fund family and its "Excelsior Funds", introduced in 1994 for the institutional
market, through small banks, broker/dealers and private labeling. UST also has a
"wrap" program through which UST's fixed-income investment products are sold by
five brokerage firms and assets now total over $500 million with approximately
900 accounts. UST's proprietary variable annuity, developed jointly with The
Chubb Life Companies ("Chubb"), is linked to clones of the UST Master Funds and
will be sold through over 200 independent third-party distributors, as well as
by UST and Chubb.
In the rapidly growing 401(k) market, UST is currently developing a bundled
product aimed at plans with more than $5 million in assets. UST will provide
investment management for the bundled product -- using a subset of the Excelsior
Funds and an asset allocation model to create a "life stages portfolios"
product. This product will also feature administration by UST, third-party
record keeping and an employee education component.
UST provides private banking services through its four offices in New York
City and through its regional offices in California, Connecticut, Florida, New
Jersey and Texas. Residential mortgages continue to be the principal credit
product in private banking, accounting for nearly two-thirds of the portfolio.
Private banking loans represent almost 90% of UST's total average loans, which
amounted to $1.3 billion in the third quarter of 1994. The remaining loans are
primarily comprised of credit facilities to securities firms and other financial
institutions. UST's credit quality continues to be strong. As a percentage of
total average loans, net loan charge-offs for the first nine months of 1994, on
an annualized basis, were five basis points.
Asset management and private banking customer deposits comprise a principal
source of funds employed to finance the loan portfolio. For the nine-month
period ended September 30, 1994, non-interest bearing asset management and
private banking deposits were approximately $270 million and interest bearing
deposits were approximately $1.2 billion. Historically, these deposits have been
a stable source of funds to UST.
Special Fiduciary Services
UST provides investment, fiduciary and consulting services to employee
benefit plans that invest in employer stocks and to individuals and families
with substantial ownership positions in public or private companies. UST
specializes in providing these services to large, complex plans and believes it
is the leading provider of such services in this segment of the market.
Competition in this segment of the market comes from several financial industry
participants, including primarily other trust companies.
Corporate Trust and Agency
One of the 10 largest corporate trustees in the country, UST is a leader in
providing trust, agency and related services to public and private corporations,
municipalities and financial institutions. Corporate trust
12
<PAGE> 16
and agency assets currently total approximately $152 billion. UST's independence
and established long-term relationships are an advantage in the indenture
trusteeship business, where UST concentrates on the high margin segment of the
market. Competitors include money center and regional banks.
During each of the past three years, UST has been the leading trustee in
New York State for new municipal long-term debt and ranks among the top three
trustees nationally.
UST is also a leader in providing trustee services for complex new types of
securities, as well as a provider of bond immobilization services. UST believes
these segments to be two of the fastest growing areas of the corporate trust and
agency business.
UST has strengthened its national presence in the corporate trust and
agency business with the opening of corporate trust offices in California and
Texas.
REGULATORY MATTERS
General
The Company is a legal entity separate and distinct from its subsidiaries.
The ability of holders of debt and equity securities of the Company to benefit
from the distribution of assets of any subsidiary upon the liquidation or
reorganization of such subsidiary is subordinate to prior claims of creditors of
the subsidiary except to the extent that a claim of the Company as a creditor
may be recognized.
There are various statutory and regulatory limitations on the extent to
which banking subsidiaries of the Company can finance or otherwise transfer
funds to the Company or its nonbanking subsidiaries, whether in the form of
loans, extensions of credit, investments or asset purchases. Such transfers by
any subsidiary bank to the Company or any nonbanking subsidiary are limited in
amount to 10% of the bank's capital and surplus and, with respect to the Company
and all such nonbanking subsidiaries, to an aggregate of 20% of each such bank's
capital and surplus. Furthermore, loans and extensions of credit are required to
be secured in specified amounts and are required to be on terms and conditions
consistent with safe and sound banking practices.
There are also regulatory limitations on the payment of dividends directly
or indirectly to the Company from its banking subsidiaries. Under applicable
banking statutes, at December 31, 1994, the banking institutions that will be
subsidiaries of the Company (which do not include USTNY) could have declared
additional dividends of approximately $8.0 million. Because New Trustco will be
a newly organized bank subsidiary of the Company, it is not anticipated that it
will be able to pay dividends other than out of its earnings in respect of
periods after the Time of Distribution. Federal and state regulatory agencies
also have the authority to limit further the Company's banking subsidiaries'
payment of dividends based on other factors, such as the maintenance of adequate
capital for such banking subsidiaries.
Under the policy of the Board of Governors, the Company is expected to act
as a source of financial strength to each subsidiary bank and to commit
resources to support such subsidiary bank in circumstances where it might not do
so absent such policy. In addition, any subordinated loans by the Company to any
of the subsidiary banks would also be subordinate in right of payment to
deposits and obligations to general creditors of such subsidiary bank. Further,
the Crime Control Act of 1990 provides that in the event of the bankruptcy of
the Company, any commitment by the Company to bank regulators to maintain the
capital of a banking subsidiary will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
In addition, as a bank holding company within the meaning of the Bank
Holding Company Act, the Company is required to obtain the prior approval of the
Board of Governors before making certain acquisitions, including the acquisition
of more than 5% of the voting shares of any company that is not a bank (subject
to limited exceptions). See "Special Factors -- Bank Holding Company Act of
1956".
The Company's banking subsidiaries will be subject to other Federal and
state banking regulations, including regulation by the Superintendent of Banks
of the State of New York, the Office of Thrift Supervision, the Comptroller of
the Currency, the Banking Department of the State of New Jersey and the Division
of Finance and Corporate Securities of the State of Oregon. See "Special
Factors -- Other Federal and State Banking Regulation".
13
<PAGE> 17
FIRREA
As a result of the enactment of the Financial Institutions Reform, Recovery
and Enforcement Act ("FIRREA") on August 9, 1989, any or all of the Company's
subsidiary banks can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the Federal Deposit Insurance Corporation ("FDIC")
after August 9, 1989, in connection with (a) the default of any other of the
Company's subsidiary banks or (b) any assistance provided by the FDIC to any
other of the Company's subsidiary banks in danger of default. "Default" is
defined generally as the appointment of a conservator or receiver and "in danger
of default" is defined generally as the existence of certain conditions
indicating that a "default" is likely to occur without regulatory assistance.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), which was enacted on December 19, 1991, provides for, among other
things, increased funding for the Bank Insurance Fund (the "BIF") of the FDIC
and expanded regulation of depository institutions and their affiliates,
including parent holding companies. A summary of certain provisions of FDICIA
and its implementing regulations is provided below.
Risk Based Deposit Insurance Assessments. A significant portion of the
additional funding to BIF is in the form of borrowings to be repaid by insurance
premiums assessed on BIF members. In addition, the FDICIA provides for an
increase in the ratio of the reserves to insured deposits of the BIF to 1.25% by
the end of the 15-year period that began with the semi-annual assessment period
ending December 31, 1991, also to be financed by insurance premiums. Insurance
premiums for a BIF-Insured institution are based on whether the institution is
within the definition of "well capitalized", "adequately capitalized" or
"undercapitalized". For purposes of the risk-based assessment system, a well
capitalized institution is one that has a total risk-based capital ratio of 10%
or more, a Tier 1 risk-based capital of 6% or more, and a leverage ratio of 5%
or more. An adequately capitalized institution has a total risk-based capital
ratio of 8% or more, a Tier 1 risk-based capital ratio of 4% or more, and a
leverage ratio of 4% or more. An undercapitalized institution is one that does
not meet either of the foregoing definitions. The actual assessment rate
applicable to a particular institution, therefore, depends in part upon the risk
assessment classification so assigned to the institution by the FDIC. At
September 30, 1994, each of the Company's banking subsidiaries was classified as
"well capitalized" under these provisions.
Prompt Corrective Action. The FDICIA also provides the federal banking
agencies with broad powers to take prompt corrective action to resolve problems
of insured depository institutions, depending upon a particular institution's
level of capital. The FDICIA establishes five tiers of capital measurement
ranging from "well capitalized" to "critically undercapitalized". A depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position under certain circumstances. At
September 30, 1994, each depository institution that will be a subsidiary of the
Company was classified as "well capitalized" under the prompt corrective actions
regulations described above.
Any depository institution that is undercapitalized and which fails to meet
regulatory capital requirements specified in the FDICIA must submit a capital
restoration plan guaranteed by the bank holding company controlling such
institution, and the regulatory agencies may place limits on the asset growth
and restrict activities of the institution (including transactions with
affiliates), require the institution to raise additional capital, dispose of
subsidiaries or assets or to be acquired and, ultimately, require the
appointment of a receiver. In addition to the requirement of mandatory
submission of a capital restoration plan, under the FDICIA, an undercapitalized
institution may not pay management fees to any person having control of the
institution nor may an institution, except under certain circumstances and with
prior regulatory approval, make any capital distribution if, after making such
payment or distribution, the institution would be undercapitalized. Further,
undercapitalized depository institutions are subject to restrictions on
borrowing from the Board of Governors.
Undercapitalized and significantly undercapitalized depository institutions
may be subject to a number of requirements and restrictions, including orders to
sell sufficient voting stock to become adequately capitalized,
14
<PAGE> 18
requirements to reduce total assets and cessation of receipt of deposits from
correspondent banks. In addition, significantly undercapitalized depository
institutions also are prohibited from awarding bonuses or increasing
compensation of senior executive officers until approval of a capital
restoration plan. Critically undercapitalized depository institutions are
subject to appointment of a receiver or conservator.
Brokered Deposits and Pass-Through Deposit Insurance Limitation. Under the
FDICA, a depository institution that is well capitalized may accept brokered
deposits and offer interest rates on deposits "significantly higher" than the
prevailing rate in its market. A depository institution that is adequately
capitalized may accept brokered deposits if it obtains the prior approval of the
FDIC. An undercapitalized depository institution may not accept brokered
deposits. In the Company's opinion, these limitations do not have a material
effect on the Company.
Safety and Soundness Standards. The FDICIA directs each federal banking
agency to prescribe safety and soundness standards for depository institutions
and depository institution holding companies relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses without impairing capital and, to the extent feasible, a minimum ratio of
market value to book value for publicly traded shares. Proposed regulations to
implement the safety and soundness standards were issued in November 1993. The
ultimate cumulative effect of these standards cannot currently be forecast.
The FDICIA also contains a variety of other provisions that may affect the
Company's operations, including new reporting requirements, regulatory standards
for real estate lending, "truth in savings" provisions, and the requirement that
a depository institution give 90 days' prior notice to customers and regulatory
authorities before closing any branch.
Capital Guidelines
Under the capital guidelines adopted by the Board of Governors, the minimum
ratio of total capital to the risk-adjusted assets (including certain
off-balance sheet items, such as standby letters of credit) of a bank holding
company is 8%. At least half of the total capital is to be comprised of common
equity, retained earnings, minority interests in the equity accounts of
consolidated subsidiaries and a limited amount of perpetual preferred stock,
less goodwill ("Tier 1 capital"). The remainder may consist of perpetual debt,
mandatory convertible debt securities, a limited amount of subordinated debt,
other preferred stock and a limited amount of loan loss reserves ("Tier 2
capital"). In addition, the Board of Governors requires a leverage ratio (Tier 1
capital to total assets, net of goodwill) of 3% for bank holding companies that
meet certain specified criteria, including that they have the highest regulatory
rating. Such rule indicates that the minimum leverage ratio should be 1% to 2%
higher for holding companies undertaking major expansion programs or that do not
have the highest regulatory rating. The state chartered and national banking
institutions that will be subsidiaries of the Company are subject to similar
capital requirements.
The federal banking agencies continue to indicate their desire to raise
capital requirements applicable to banking organizations, and recently proposed
amendments to their risk-based capital regulations to provide for the
consideration of interest rate risk in the determination of a bank's minimum
capital requirements. The proposed amendments are intended to require that banks
effectively measure and monitor their interest rate risk and that they maintain
capital adequate for that risk. Under the proposed amendments, banks with
interest rate risk in excess of a defined supervisory threshold would be
required to maintain additional capital beyond that generally required. In
addition, the federal banking agencies recently proposed amendments to their
risk-based capital standards to provide for the concentration of credit risk and
certain risks arising from nontraditional activities, as well as a bank's
ability to manage these risks, as important factors in assessing a bank's
overall capital adequacy.
As of September 30, 1994, the capital ratios of UST and of each of the
institutions that will be subsidiaries of the Company are well capitalized.
15
<PAGE> 19
Under FIRREA and FDICIA, failure to meet the minimum regulatory capital
requirements could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities, including the termination
of deposit insurance by the FDIC and seizure of the institution.
On September 29, 1994, President Clinton signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act").
The Interstate Act generally authorizes bank holding companies to acquire banks
located in any state commencing one year after its enactment. In addition, it
generally authorizes national and state chartered banks to merge across state
lines (and to thereby create interstate branches) commencing June 1, 1997. Under
the provisions of the Interstate Act, states are permitted to "opt out" of this
latter interstate branching authority by taking action prior to the commencement
date. States may also "opt in" early (i.e., prior to June 1, 1997) to the
interstate merger provisions. Further, the Interstate Act provides that states
may act affirmatively to permit de novo branching by banking institutions across
state lines.
FUTURE CONDUCT OF THE BUSINESS
Seligman Acquisition
The Company's business strategy is to expand in areas where personal wealth
is concentrated. On January 17, 1995, UST announced that it had agreed to
acquire the individual account business of J.&W. Seligman and Co. and to
purchase J.&W. Seligman Trust Company for up to $20 million in cash. Such
businesses will be transferred to the Company in the Internal Reorganization.
Consistent with its strategy, the Company plans to continue to seek ways to
expand its presence in California, Florida, Texas, the Pacific Northwest and the
greater New York City region, as well as to expand opportunistically into new
areas of wealth concentration.
Following the Distribution, the Company will continue to examine other
strategic alternatives, including possible acquisitions, strategic alliances,
joint ventures and investments in an effort to increase stockholder value.
Use of Names
Immediately following the Merger, the Company will assume the name "U.S.
Trust Corporation", and New Trustco will assume the name "United States Trust
Company of New York". Each of the Company and New Trustco will conduct business
under those names in the future. As part of the Internal Reorganization, the
Company will acquire all trademarks, tradenames and other intellectual property
necessary to the conduct of the Core Businesses.
Relationship with Chase
In addition, pursuant to the Services Agreement, following the Merger, a
subsidiary of Chase will provide the Company with certain essential back office
operations. Pursuant to the Post Closing Covenants Agreement, the Company has
also agreed for a period of four years after the Effective Time not to engage
in, or compete with Chase with respect to, the securities processing business,
subject to limited exceptions. See "Special Factors -- Relationship with Chase;
Reliance on Services Agreement" and "Relationship with Chase".
Management
The management of the Company following the Distribution will be
substantially the same as the management of UST prior to the Distribution.
EMPLOYEES
It is anticipated that immediately following the Distribution, the Company
will employ approximately 1,350 persons.
16
<PAGE> 20
PROPERTIES
The Company will lease its principal executive office in New York, New York
which is currently leased by UST. Additional executive offices currently owned
or leased by UST will be transferred to and owned or leased by the Company in
New York, New Jersey, Connecticut, Washington D.C., California, Texas and
Florida. The Company's management believes that all the properties to be owned
or leased by the Company following the Distribution will be adequate for the
Company's business needs and will be in good operating condition.
LEGAL MATTERS
There are various pending and threatened actions and claims against UST and
its subsidiaries for which liability has been denied and which will be
vigorously contested. The Company will assume any liabilities associated with
these actions pursuant to the Contribution Agreement. Included among these are
the following cases:
On December 1, 1994, a complaint was filed against USTNY in the Supreme
Court of the State of New York, County of New York, entitled Ithaca Partners,
L.P. and Gabriel Capital, L.P. v. United States Trust Company. USTNY is Trustee
under an Indenture dated October 1, 1988 (the "Indenture") under which Linter
Textiles Corporation Limited ("Linter Textiles") issued $200 million in
principal amount of Senior Subordinated Debentures (the "Debentures"). Linter
Textiles, a corporation organized under the laws of Australia, was a holding
company for various operating subsidiaries (the "Linter Subsidiaries") and was
also a subsidiary of Linter Group Limited ("Linter Group"). Linter Group, Linter
Textiles and the Linter Subsidiaries are being liquidated under Australian law;
however, based on the parties' contractual priorities, the proceeds of the
liquidation will be insufficient to satisfy the claims of the holders of the
Debentures. The plaintiffs are two limited partners who claim to have purchased
$97.43 million in principal amount of the Debentures. Plaintiffs allege that the
Debentures were issued pursuant to a fraudulent prospectus which failed to
disclose Linter Textiles' intention to incur $323 million (Australian) in senior
indebtedness through guaranties of indebtedness of Linter Group and to cause the
Linter Subsidiaries to guaranty the senior indebtedness. The complaint asserts
that covenants in the Indenture were breached in connection with the execution
of those guaranties and the guaranties of the Debentures delivered by the Linter
Subsidiaries to USTNY in connection therewith and asserts causes of action for
breach of contract and breach of fiduciary duty based on USTNY failing to take
action itself or to advise holders of the Debentures that Linter Textiles and
the Linter Subsidiaries were incurring substantial indebtedness on behalf of the
Linter Group. The complaint seeks unspecified damages measured by the amount of
the diminution from the face value of the Debentures suffered as a result of the
existence of the guaranties of senior indebtedness, plus interest and
plaintiff's expenses incurred in connection with the liquidation proceedings in
Australia.
In July 1990, an action captioned "Official Committee of Unsecured
Creditors of Fulfillment Associates, Inc. v. Louis Freedman et al. v. United
States Trust Company of New York" was brought in the United States Bankruptcy
Court for the Eastern District of New York. The complaint was filed by the
Creditors Committee of Fulfillment Associates, Inc. (the "CCFA") against
stockholders of CCFA who sold their shares in a leveraged buyout financed by
USTNY. The complaint seeks damages in excess of $500,000 and alleges a
fraudulent transfer in the granting of liens to USTNY on the assets of CCFA,
abuse of fiduciary duty by the stockholders and breach of employment agreements
entered into by the stockholders with CCFA. The stockholders have filed a
third-party complaint against USTNY in an unspecified amount seeking
indemnification or contribution for all amounts for which the stockholders may
be held liable to CCFA. USTNY's motion to dismiss the third-party complaint is
pending before the Bankruptcy Court.
THE DISTRIBUTION
This section of the Information Statement describes certain aspects of the
proposed Distribution. To the extent that they relate to the Distribution
Documents, the following descriptions do not purport to be complete and are
qualified in their entirety by reference to the Distribution Documents, which
are Exhibits to the Company Form 10 and are attached as Appendix B through E to
the Proxy Statement-Prospectus and are
17
<PAGE> 21
incorporated herein by reference. All stockholders are urged to read the
Distribution Documents in their entirety.
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
UST's management has regularly reviewed possible strategies and
transactions to enhance UST's competitiveness and to position its assets and
businesses in a manner that would increase the value of those assets and of
UST's businesses and operations, thereby increasing stockholder value. These
strategies included a possible acquisition, joint ventures, internal
restructurings, outsourcing of operational services and divestiture of one of
its businesses. In December 1993, UST's management determined that UST should
examine the possibility of a divestiture of the Processing Business (as defined
below) in its entirety. The principal reasons for UST's determination to
actively pursue this strategic course of action was the conclusion that the
securities processing business would require significant allocations of capital
and financial resources on an ongoing basis to remain competitive, while UST
anticipated needs for additional capital and financial resources to expand its
more profitable growth opportunities in the asset management, private banking,
and corporate trust and agency businesses over the coming years. In addition,
UST's management believed that, in light of the size of its capital, the
inherent operating risks in securities processing businesses generally could,
over time, threaten UST's reputation and franchise in the Core Businesses. The
examination of strategic alternatives culminated in November 1994 with the
execution of the Merger Agreement with Chase. For a discussion of the events
leading up to the execution of the Merger Agreement, see "The
Merger -- Background of the Merger" in the Proxy Statement-Prospectus to which
this Information Statement is attached as Appendix H.
Pursuant to the Merger Agreement and the transactions described therein,
Chase will acquire the Chase Acquired Business, which consists of UST's
securities processing business and related back office operations, including the
assets and certain of the liabilities related thereto. UST's securities
processing business (the "Processing Business") consists of the businesses,
assets and certain liabilities related to (i) the unit investment trust business
of USTNY and its affiliates, which includes, among other things, acting as
trustee for "unit investment trusts" (as such term is defined in the Investment
Company Act of 1940, as amended), maintaining custody of securities and
investments for unit trusts and providing other processing support to unit
trusts, (ii) the mutual funds services business of UST and its subsidiaries,
which includes, among other things, providing domestic and global custody,
transfer agency and other administrative services to registered investment
companies and (iii) the institutional asset services business of USTNY and its
affiliates, which includes, among other things, master trust and custody
services, securities lending services, rabbi trust services and certain money
management services. UST's related back office operations (the "Related Back
Office") consists of the businesses, assets and certain liabilities related to
USTNY's computer services division and securities services and trust operations
division.
The sale of the Chase Acquired Business will be effected through a series
of sequential transactions, including the Distribution and the Merger, all as
set forth in the Merger Agreement. The purpose of this complex structure is to
permit the sale of the Chase Acquired Business on a tax-free basis to UST and
its stockholders in a transaction in which UST stockholders will receive Chase
Common Stock and will also retain their proportionate equity interests in the
Core Businesses in the form of Company Common Stock to be received in the
Distribution. In order to ensure the tax-free nature of the sale, UST (which
will then hold only the Chase Acquired Business) will be merged with and into
Chase. Accordingly, a "reverse spinoff" structure was adopted pursuant to which
the Core Businesses will be transferred to the Company and its subsidiaries and
the Company Common Stock will, prior to the Merger, be distributed to UST
stockholders in the Distribution.
Although the Distribution will not be effected unless the Merger is
approved and about to occur, the Distribution is separate from the Merger and
the Company Common Stock to be received by holders of UST Common Stock in the
Distribution does not constitute a part of the consideration to be received by
UST stockholders in the Merger. Consummation of the Distribution is a condition
to the Merger.
18
<PAGE> 22
TERMS OF THE CONTRIBUTION AGREEMENT
In connection with the Distribution, USTNY and New Trustco will enter into
the Contribution Agreement. The Contribution Agreement provides for, among other
things, a series of asset and stock transfers between USTNY and New Trustco, and
the assignment to and assumption by, New Trustco of liabilities of USTNY
relating to the assets and stock transferred (the "Contribution Asset
Transfers"). The Contribution Asset Transfers are designed to transfer all the
assets and liabilities of USTNY to New Trustco, other than the businesses,
assets and liabilities included in the Chase Acquired Business.
Contribution Assets and Contribution Liabilities
Pursuant to the terms of the Contribution Agreement, immediately prior to
the Distribution Asset Transfers (as defined under "-- Terms of the Distribution
Agreement -- The Distribution Asset Transfers" below), USTNY will assign,
transfer, convey and contribute to New Trustco, effective as of the Closing, all
the business, properties, assets, goodwill and rights of USTNY, other than the
Chase Assets (as defined below), owned by USTNY on the Closing Date (the
"Contribution Assets"), including: (i) all assets used or held for use primarily
in the Core Businesses; (ii) all agreements entered into by USTNY with customers
or clients of the Core Businesses relating to such businesses; (iii) all
mortgages, loans, overdrafts, lines of credit, rights in respect of letters of
credit and similar assets of the Core Businesses and all rights in respect of
collateral or security (except rights in collateral to the extent that such
rights secure any Chase Assets) for any of the foregoing; (iv) all accrued fees,
accrued interest and accounts receivable, other than those of the Chase Acquired
Business; (v) all real property owned by USTNY and all rights in certain leases;
(vi) all cash on hand, funds available for investment, investments and
securities of USTNY, other than certain investments or funds reflected on the
balance sheet of the Chase Acquired Business at the Time of Distribution; (vii)
USTNY's interest in all lease and licensing agreements, and related support
agreements, with third parties for the use of systems and applications software
(excluding, however, certain data processing licenses and computer leases);
(viii) USTNY's interest in UST's core trust and custody software system utilized
by USTNY in the Processing Business and its other businesses (the "Asset
Management System"); (ix) all rights relating to the Contribution Liabilities
(as defined below); (x) all rights relating to certain abandoned property; (xi)
all policies of insurance or similar agreements; (xii) all collateral posted to
secure clearing and other contingent obligations ; and (xiv) all fees or
accounts receivable of the Chase Acquired Business which have been paid on or
before the close of business on the day immediately prior to the Closing Date.
The Contribution Agreement also provides that, subject to certain limited
exceptions, the Contribution Assets will not include assets of USTNY that are
primarily used, or that are held for use in, or are reasonably necessary for the
conduct by USTNY of, the Chase Acquired Business on the Closing Date (the "Chase
Assets"), including: (i) all customer agreements relating to the Processing
Business; (ii) all accounts receivable and accrued and unpaid fees under
customer agreements owed to USTNY on the Closing Date and arising out of the
Processing Business; (iii) certain agreements by which USTNY is bound that
relate to the Chase Acquired Business; (iv) USTNY's lease relating to space in
the building located at 770 Broadway, New York, New York (the "Broadway Lease");
(v) certain USTNY proprietary systems and application software; and (vi) all
rights relating to Chase Liabilities (as defined below).
In addition, pursuant to the terms of the Contribution Agreement, New
Trustco will assume, subject to certain exceptions, effective as of the Closing,
and will pay, perform and discharge when due and indemnify USTNY and hold USTNY
harmless from and against all liabilities (the "Contribution Liabilities") of
USTNY existing on the Closing Date (other than Chase Liabilities), including:
(i) all liabilities of USTNY relating to or arising out of the Core Businesses;
(ii) all liabilities arising out of any event, occurrence, action or omission
taken or occurring prior to the Closing Date by or with respect to USTNY, its
officers, directors, Board of Trustees, employees, agents or representatives;
(iii) all obligations in respect of the 8 1/2% Capital Notes due 2001 of USTNY;
(iv) any liability which is attributable to any of the Acquired Contribution
Assets; (v) all liabilities under each UST benefit plan that is transferred to
New Trustco; (vi) all fees and expenses of USTNY and its subsidiaries incurred
on or before the Contribution Asset Transfers in connection with the Merger; and
(vii) all obligations under agreements relating to the Chase Acquired Business
that are to be performed or discharged prior to the Closing Date.
19
<PAGE> 23
The Contribution Agreement also provides that at all times at and after the
Closing, USTNY will, subject to certain exceptions, retain and be solely
responsible for, and USTNY will pay, perform and discharge when due, and
indemnify New Trustco and hold New Trustco harmless from and against the
following liabilities (the "Chase Liabilities"): (i) all deposits arising from
the Processing Business; (ii) all liabilities to trade creditors and accounts
payable of the Chase Acquired Business reflected on the balance sheet of the
Chase Acquired Business at the Time of Distribution; (iii) all liabilities under
agreements relating to the Processing Business, subject to limited exceptions;
(iv) (A) all liabilities for amounts required to be paid as of or after the
Effective Time under the terms of UST's 1986 Stock Option Plan and employer
payroll taxes due with respect to such amounts, subject to certain limits and
(B) all liabilities for amounts payable under a transition bonus program
established by the Company in connection with the Merger maintained by USTNY;
(v) all obligations and duties as lessee under the Broadway Lease arising after
the Closing Date; and (vi) certain obligations relating to certain abandoned
property.
Delayed Assets and Delayed Liabilities
The Contribution Agreement provides that to the extent that any consent
with respect to a contract, agreement, lease or other instrument included in the
Contribution Assets that is legally required to effect the transfer thereof to
New Trustco (a "Required Consent"), and that has not been obtained on or prior
to the Closing Date (a "Delayed Asset"), will not be transferred as a
Contribution Asset, and any related liability (a "Delayed Liability") will not
be assumed by New Trustco as a Contribution Liability, unless and until such
Required Consent has been obtained. Pursuant to the Contribution Agreement,
USTNY will agree that if such a Required Consent to transfer is not obtained,
USTNY will reasonably cooperate with New Trustco to attempt to provide to New
Trustco the benefits under or of any such Delayed Asset; provided that New
Trustco will assume, pay and perform (and indemnify and hold USTNY harmless from
and against) all obligations and liabilities relating to such Delayed Asset or
Delayed Liability and will promptly reimburse USTNY for all of its actual costs
and expenses (including attorneys' fees and employee salaries and allocable
benefits, but not overhead) in connection with any such arrangement.
USTNY and New Trustco will agree that, on each occasion after the Closing
Date that a Required Consent is obtained with respect to a Delayed Asset, such
Delayed Asset will be transferred and assigned to New Trustco, and all related
Delayed Liabilities will be simultaneously assumed by New Trustco.
Use of Names
The Contribution Agreement contemplates that after the Closing Date, USTNY
will promptly change the name "USTNY" on all documents, stationery and
facilities relating to the Chase Acquired Business to a name that is not in any
way similar to USTNY's name (or any name or initial confusingly similar to that
of any existing affiliates of New Trustco). Under the Contribution Agreement,
USTNY will transfer to New Trustco all right, title and interest in and to, and
all rights to use, USTNY's name (or any name or initial similar thereto or of
any existing affiliates of USTNY).
Chase Acquired Business Balance Sheet
Because all the consideration for the sale of the Chase Acquired Business
is being paid directly to the UST stockholders in the form of Chase Common
Stock, the Contribution Agreement generally contemplates that the balance sheet
assets of the Chase Acquired Business to be retained by UST after the
Distribution will be equal to the balance sheet liabilities of the Chase
Acquired Business. In order to effectuate this, the Contribution Agreement
provides, subject to certain exceptions, that USTNY will retain, and not
contribute to New Trustco, an amount of cash and short-term U.S. Treasury
securities (valued at the amount that could be realized on their disposition)
expected to exceed by $5.5 million the amount by which the balance sheet
liabilities of the Chase Acquired Business exceed the balance sheet assets of
the Chase Acquired Business. (Such a mechanism is necessary because the deposit
and other liabilities of the Processing Business will significantly exceed the
assets -- which are comprised principally of leasehold improvements, furniture,
equipment and accounts receivable -- of the Processing Business, and since no
investment assets or funds of USTNY are specifically allocated to, or considered
to be assets of, the Processing Business for purposes of the
20
<PAGE> 24
Contribution Agreement or Distribution Agreement). The amount of funds and U.S.
Treasury securities to be retained by USTNY is subject to additional adjustments
to compensate for amounts otherwise payable by one party to the other in
connection with the transaction or to compensate for liabilities assumed by
Chase that do not directly relate to the Chase Acquired Business. Similarly, the
amount of funds to be retained by USTNY will be increased to reflect payment
obligations to be retained by USTNY in respect of certain employee plans, the
after-tax cost to Chase of terminating out-of-market computer equipment leases
being acquired in the Merger and certain payments relating to the leasehold
space at 770 Broadway also being acquired by Chase as a consequence of the
Merger.
In order to permit the calculation of the amount of funds and U.S. Treasury
securities to be retained by New Trustco, USTNY will prepare Closing Date
balance sheets for USTNY, MF Service Company and UST-WY. The amounts reflected
therein, to the extent based on estimates or otherwise erroneous, will be
finalized and corrected after the Closing Date, and New Trustco or USTNY will
make any compensating payment to the other party required in connection
therewith.
Conditions of Obligations of New Trustco and USTNY
The Contribution Agreement provides that the respective obligation of each
party to effect the Contribution Asset Transfers is subject to satisfaction or
waiver (which waiver, in the case of USTNY, requires the consent of Chase) prior
to the Closing of the following conditions: (a) all necessary consents or
expirations of waiting periods imposed by any governmental authority shall have
been obtained or shall have occurred; (b) there shall be no suit, action, or
other proceeding pending which has been initiated by any governmental authority
seeking to restrain, prohibit, invalidate or set aside in whole or in part the
consummation of the transactions contemplated by the Contribution Agreement and
no temporary restraining order, preliminary or permanent injunction or other
legal restraint or prohibition preventing the consummation of the transactions
contemplated by the Contribution Agreement shall be in effect; and (c) all
conditions to the consummation of the transactions contemplated by the Merger
Agreement (other than the Asset Transfers (as defined below) and the
Distribution) shall have been satisfied.
Conditions of Obligation of New Trustco
The obligation of New Trustco to accept the Contribution Assets and assume
the Contribution Liabilities is further subject to the following conditions,
unless waived by New Trustco: (a) the representations and warranties of USTNY
set forth in the Contribution Agreement shall be true and correct in all
material respects as of the date of such agreement and as of the Closing as
though made on and as of the Closing (or on or as of the date when made in the
case of any representation or warranty which specifically relates to an earlier
date); (b) USTNY shall have performed or complied in all material respects with
all obligations, conditions and covenants required to be performed or complied
with by it under the Contribution Agreement at or prior to the Closing; (c)
USTNY shall have delivered to New Trustco an appropriate bill of sale conveying
the Contribution Assets; (d) the Merger Agreement and each of the Distribution
Documents shall have been executed and shall, subject to consummation of the
transactions contemplated by the Merger Agreement, the Distribution Agreement
and the Contribution Agreement, be effective and in force; and (e) USTNY shall
have amended its organization certificate to change its name.
Conditions of Obligations of USTNY
The obligations of USTNY to assign the Contribution Assets and transfer the
Contribution Liabilities is further subject to the following conditions, unless
waived by USTNY (with the consent of Chase): (a) the representations and
warranties of New Trustco set forth in the Contribution Agreement shall be true
and correct in all material respects as of the date of such agreement and as of
the Closing Date as though made on and as of the Closing Date (or on or as of
the date when made in the case of any representation or warranty which
specifically relates to an earlier date); (b) New Trustco shall have performed
or complied in all material respects with all obligations required to be
performed or complied with by it under the Contribution Agreement at or prior to
the Closing; (c) New Trustco shall have executed and delivered to USTNY an
Assumption Agreement relating to the Contribution Liabilities; and (d) the
Merger Agreement and each of
21
<PAGE> 25
the Distribution Documents shall have been executed and shall, subject to
consummation of the transactions contemplated by the Merger Agreement, the
Distribution Agreement and the Contribution Agreement, be effective and in
force.
TERMS OF THE DISTRIBUTION AGREEMENT
The Distribution Agreement provides for, among other things, (i) the
dividend by USTNY of all the capital stock of New Trustco to UST, and the
subsequent contribution by UST of such capital stock to the Company and (ii) the
Distribution.
In addition, the Distribution Agreement provides for a series of asset and
stock transfers between and among UST, certain of UST's subsidiaries and the
Company, and the assignment to and assumption by the Company of certain
liabilities of UST and certain of its subsidiaries relating to the assets and
stock transferred (the "Distribution Asset Transfers" and, together with the
Contribution Asset Transfers, the "Asset Transfers"). The Distribution Asset
Transfers are designed to transfer the Core Businesses to the Company.
Recapitalization of the Company
The Distribution Agreement provides that immediately prior to the Time of
Distribution, UST will appropriately cause the Company to amend its Certificate
of Incorporation to, among other things, increase the currently authorized
number of shares of common stock of the Company and to exchange the 100 shares
of such common stock currently outstanding for a total number of shares of
Company Common Stock equal to the total number of shares of UST Common Stock
outstanding immediately prior to the Distribution Record Date.
Method of Effecting the Distribution
The Distribution Agreement provides that the Distribution will be effected
by the distribution to each holder of record of UST Common Stock, as of the
close of the stock transfer books on the Distribution Record Date, of
certificates representing one share of Company Common Stock multiplied by the
number of shares of UST Common Stock held by such holder.
Distribution Assets and Distribution Liabilities
Pursuant to the terms of the Distribution Agreement, immediately prior to
the Time of Distribution and immediately following the Contribution Asset
Transfers and the dividend by USTNY of all of the stock of New Trustco to UST,
UST will assign, transfer, convey and contribute, or cause the assignment,
transfer, conveyance and contribution of, the following (collectively, the
"Distribution Assets" and, together with the Contribution Assets, the "Company
Assets") to the Company:
(a) all of the issued and outstanding capital stock of the following
subsidiaries: (i) New Trustco; (ii) U.S. Trust Company of Florida Savings Bank,
a Florida banking corporation; (iii) U.S.T.L.P.O. Corp., a Delaware corporation;
(iv) Campbell, Cowperthwait & Company, a Delaware corporation; (v) U.S. Trust
Company of California, N.A., a national banking association; (vi) U.S. Trust
Company of New Jersey, a New Jersey banking corporation; (vii) U.S. Trust
Company of Connecticut, a Connecticut banking corporation; (viii) UST Financial
Services Corp., a New York trust company; (ix) CTMC Holding Company, an Oregon
corporation; (x) U.S. Trust Company Limited, a New York banking corporation;
(xi) Technologies Holding Corporation, a Delaware corporation; and (xii) UST
Risk Management Services Inc., a New York corporation.
(b)(i) subject to the Retention Amount (as defined under "-- Retention
Amount" below), all cash on hand, investments (subject to certain exceptions)
and securities (subject to certain exceptions) owned by, or held for the account
of, UST; (ii) all patents, trademarks, service marks and the like, and all
rights to the name "U.S. Trust Corporation" or any other name used or employed
by UST or any of its affiliates (other than MF Service Company (as defined
below)); (iii) all equity or debt investments of UST in any corporation or other
business association (other than UST's equity investments in MF Service Company,
a Delaware
22
<PAGE> 26
Corporation ("MF Service Company"), USTNY and U.S. Trust Company of Wyoming, a
Wyoming corporation ("UST-WY")); and (iv) all rights relating to the
Distribution Liabilities (as defined below).
(c)(i) all cash on hand, investments and securities owned by, or held for
the account of, MF Service Company; and (ii) all equity or debt investments of
MF Service Company (other than MF Service Company's equity interest in Mutual
Funds Service Company (Canada) Ltd.) in any corporation or other business
association.
(d)(i) all cash on hand, investments and securities owned by, or held for
the account of UST-WY; (ii) all patents, trademarks, service marks and the like
and all rights with respect to the name "U.S. Trust Company of Wyoming" or any
similar name used or employed by UST-WY or any of its affiliates; and (iii) all
equity or debt investments of UST-WY in any corporation or other business
association.
The Distribution Agreement provides that, notwithstanding any other
provision therein to the contrary, the businesses and assets which are a part of
the Core Businesses will not include the business, properties, assets, goodwill
and rights of UST of whatever kind and nature, real or personal, tangible or
intangible that are primarily used or held for use in the Chase Acquired
Business on the Closing Date (other than any names that are Distribution Assets,
and any similar names).
The Distribution Agreement also provides that if, after the Time of
Distribution, either party holds assets which by the terms of the Distribution
Agreement, the Contribution Agreement or the Merger Agreement were intended to
be assigned and transferred to, or retained by, the other party, such party will
promptly assign and transfer or cause to be assigned and transferred such assets
to the other party. The Distribution Agreement further provides that, except as
otherwise provided therein or in the Merger Agreement, the Contribution
Agreement, the Post Closing Covenants Agreement or the Tax Allocation Agreement,
at or prior to the Time of Distribution, the Company will assume, or agree to be
responsible for, all liabilities (the "Distribution Liabilities" and, together
with the Contribution Liabilities, the "Company Liabilities") of UST, MF Service
Company and UST-WY other than (i) the certain specified liabilities of MF
Service Company (the "MF Service Company Retained Liabilities") arising before
the Time of Distribution; (ii) the certain specified liabilities of UST-WY (the
"UST-WY Retained Liabilities") arising before the Time of Distribution and (iii)
the liabilities and obligations relating to the Retention Amount.
Retention Amount
Pursuant to the terms of the Distribution Agreement, and notwithstanding
the Distribution Asset Transfers, UST will retain, and not distribute or
contribute to the Company pursuant to the Distribution Asset Transfers, cash
funds equal to the Retention Amount. The Distribution Agreement defines the
"Retention Amount" as the sum of (w) the aggregate amount, determined as of the
close of business on the day immediately prior to the Closing Date, of the cash
payments required to be made with respect to all stock options granted under the
1989 Stock Compensation Plan of U.S. Trust Corporation and the U.S. Trust
Corporation Stock Option Plan for Non-Employee Directors that have not expired
or that have not been exercised or canceled prior to the Effective Time,
determined in accordance with the relevant provisions of each such plan on the
basis of a "change in control" having occurred thereunder with respect to such
stock options as a result of the Merger; (x) the product of (i) the aggregate
amount, determined as of the close of business on the day immediately prior to
the Closing Date, of the cash payments required to be made with respect to all
outstanding account balances under the Annual Incentive Plan of U.S. Trust
Corporation, determined in accordance with the relevant provisions of such plan
(including any amendment thereof made in accordance with the terms of the Merger
Agreement) on the basis of a "change in control" having occurred thereunder as a
result of the Merger, multiplied by (ii) 0.68875; plus (y) the aggregate amount,
determined as of the close of business on the day immediately prior to the
Closing Date, required to pay any employer payroll taxes, including for
employer's share of FICA and FUTA, due on amounts payable under the plans
referred to in clauses (w) and (x) above; minus (z) the sum of (i) $5.5 million
plus (ii) an amount equal to the amount of MF Service Company's net worth as
reflected on its Closing Date balance sheet plus (iii) an amount equal to the
amount of UST-WY's net worth as reflected on its Closing Date balance sheet.
23
<PAGE> 27
Under the Distribution Agreement, UST will retain and be solely responsible
for, and will agree to pay, perform and discharge when due, and indemnify the
Company and hold the Company harmless from and against, all liabilities and
obligations, subject to certain limitations, for amounts payable under each of
the plans referred to in clauses (w) and (x)(i) of the foregoing paragraph, and
all liabilities and obligations to pay all employer payroll taxes referred to in
clause (y) of the foregoing paragraph.
Conditions to the Distribution
The obligations of UST and the Company to consummate the Distribution are
subject to the fulfillment of each of the following conditions: (i) the
recapitalization of the Company shall have been completed substantially as
described in the Distribution Agreement; (ii) each of the Contribution
Agreement, the Post Closing Covenants Agreement and the Tax Allocation Agreement
shall have been executed and delivered by each of the parties thereto, and the
Contribution Asset Transfers shall have been consummated; (iv) all of the
Distribution Asset Transfers shall have been successfully consummated; (v) each
condition to the Closing of the Merger Agreement, other than the condition
requiring the satisfaction of conditions contained in the Distribution
Agreement, shall have been fulfilled; (vi) the Distribution shall have been
approved by the affirmative vote of the holders of UST Common Stock entitled to
cast at least two-thirds (or 66 2/3%) of the total number of votes entitled to
be cast; (vii) any registration statement filed by the Company with the
Commission in connection with the issuance of the Company Common Stock in the
Distribution shall have become effective, and shall not be the subject of any
stop order or proceeding by the Commission seeking a stop order; (viii) the
shares of the Company Common Stock to be issued in the Distribution shall have
designated as a national market system security on the interdealer quotation
system by the National Association of Securities Dealers, Inc. (the "NASD");
(ix) all necessary consents or expirations of waiting periods imposed by any
governmental authority shall have been obtained or shall have occurred; and (x)
no temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution shall be in effect.
Amendment
The Distribution Agreement provides that UST and the Company may modify or
amend the Distribution Agreement by written agreement, subject to the consent of
Chase.
TERMS OF THE POST CLOSING COVENANTS AGREEMENT
Indemnification by the Company
Pursuant to the Post Closing Covenants Agreement, the Company will agree
that, from and after the Effective Time, it will indemnify and hold harmless
Chase, UST and USTNY (collectively, the "Chase Parties") and their respective
directors, officers, employees, affiliates, agents and assigns, as applicable,
against any and all losses, as incurred, for or on account of or arising from:
(a) any breach of or any inaccuracy in any representation or warranty of any of
the Company, New Trustco (collectively, the "New UST Parties"), UST, USTNY and
their subsidiaries contained in the Merger Agreement or any of the Distribution
Documents; (b) any breach or nonperformance of any covenant of (i) the New UST
Parties or any of their subsidiaries contained in the Merger Agreement or the
Distribution Documents whether to be performed before or after the Effective
Time or (ii) UST or USTNY or any of their subsidiaries contained in the
Distribution Documents to be performed prior to the Effective Time; (c) any
Company Asset or Company Liability; (d) any Delayed Asset or Delayed Liability;
(e) any regulatory or compliance violation that arises out of events, actions or
omissions to act of UST or USTNY occurring prior to the Effective Time and
adversely affects a customer account or any entity that has an interest in such
customer account; (f) except for the Chase Liabilities and the MF Service
Company Retained Liabilities, and actions relating to the Processing Business,
claims of any shareholders, directors, officers, employees or agents of UST and
its subsidiaries arising from the execution by UST or USTNY of the Merger
Agreement or the Distribution Documents and the consummation after the Effective
Time of transactions in accordance with the terms of such documents; (g) any
untrue statement or alleged untrue statement of any material fact contained in
the Proxy Statement-
24
<PAGE> 28
Prospectus or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; but only in each case to the extent based
upon information with respect to the New UST Parties, furnished in writing by or
on behalf of the New UST Parties, or at any time prior to the Effective Time,
UST or USTNY, expressly for use in the Proxy Statement-Prospectus or any
amendment or supplement thereto; and (h) any liability arising (i) from a claim
to enforce, or to recover tort liability arising out of, any Federal, state or
local law, rule or regulation relating to the protection of the environment with
respect to any facility, site, location or business (whether past or present and
whether active or inactive) owned, operated or leased by UST or USTNY or any of
their subsidiaries prior to the Effective Time and (ii) as a result of
conditions existing during or prior to the period of time such facility, site,
location or business was owned, operated or leased by UST or USTNY or any of
their subsidiaries.
Indemnification by New Trustco
Pursuant to the Post Closing Covenants Agreement, New Trustco will agree
that, from and after the Effective Time, it will indemnify and hold harmless the
Chase Parties and their respective directors, officers, employees, affiliates,
agents and assigns, as applicable, against any and all losses, as incurred, for
or on account of or arising from: (a) any breach of or any inaccuracy in any
representation or warranty of New Trustco or USTNY and their subsidiaries
contained in the Merger Agreement or any of the Distribution Documents; (b) any
breach or nonperformance of any covenant of (i) New Trustco contained in the
Merger Agreement or the Distribution Documents whether to be performed before or
after the Effective Time or (ii) USTNY contained in the Merger Agreement or the
Distribution Documents to be performed prior to the Effective Time; (c) any
Contribution Asset or Contribution Liability; (d) any Delayed Asset or Delayed
Liability; (e) any regulatory or compliance violation that arises out of events,
actions or omissions to act of USTNY occurring prior to the Effective Time and
adversely affects a customer account or any entity with an interest in such
customer account; and (f) any liability arising (i) from a claim to enforce, or
to recover tort liability arising out of, any Federal, state or local law, rule
or regulation relating to the protection of the environment with respect to any
facility, site, location or business (whether past or present and whether active
or inactive) owned, operated or leased by USTNY prior to the Effective Time and
(ii) as a result of conditions existing during or prior to the period of time
such facility, site, location or business was owned, operated or leased by
USTNY.
Indemnification by Chase
Pursuant to the Post Closing Covenants Agreement, Chase will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for or
on account of or arising from: (a) any breach of or inaccuracy in any
representation or warranty of Chase contained in the Merger Agreement or any of
the Distribution Documents; (b) any breach or nonperformance of any covenant of
(i) Chase contained in the Merger Agreement or the Distribution Documents
whether to be performed before or after the Effective Time or (ii) UST or USTNY
or any of their subsidiaries contained in the Distribution Documents to be
performed after the Effective Time; (c) except for losses as to which any of the
Chase Parties are entitled to indemnification, any Chase Asset, any Chase
Liability or any MF Service Company Retained Liability; and (d) any untrue
statement or alleged untrue statement of any material fact contained in the
Proxy Statement-Prospectus or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; but only in each case
to the extent based upon information with respect to the Chase Parties furnished
in writing by or on behalf of Chase or, at any time after the Effective Time,
UST or USTNY, expressly for use in the Proxy Statement-Prospectus or any
amendment or supplement thereto.
25
<PAGE> 29
Indemnification by USTNY
Pursuant to the Post Closing Covenants Agreement, USTNY will agree that,
from and after the Effective Time, it will indemnify and hold harmless the New
UST Parties and their respective directors, officers, employees, affiliates,
agents, and assigns, as applicable, from any and all losses, as incurred, for or
on account of or arising from: (a) any breach or nonperformance of any covenant
of USTNY contained in the Merger Agreement or the Distribution Documents to be
performed after the Effective Time; and (b) except for losses as to which any of
the Chase Parties are entitled to indemnification, any Chase Asset or any Chase
Liability.
Termination and Limitation on Indemnification
The Post Closing Covenants Agreement provides that each party's obligation
to indemnify and hold harmless any other party will terminate, subject to
certain limited exceptions, (i) in the case of indemnification with respect to
the breach of any representation and warranty by any party, two years from the
Closing Date and (ii) in the case of indemnification with respect to regulatory
compliance, one year from the Closing Date. The other indemnification provisions
do not terminate.
The Post Closing Covenants Agreement also provides that, notwithstanding
any of its other provisions, neither the New UST Parties nor Chase or USTNY will
be obligated to indemnify any party unless the aggregate amount of all losses
relating to such liability exceeds on a cumulative basis an amount equal to
$500,000 (the "Deductible Amount"), and then only to the extent of any such
excess; provided, that any loss arising from a single indemnification claim in
an amount greater than $50,000 will not be subject to such limitation and will
be excluded from the determination of the Deductible Amount. In addition,
amounts to be indemnified pursuant to certain provisions of the Contribution
Agreement and certain provisions of the Distribution Agreement are not subject
to such limitation.
Minimum Net Worth
Pursuant to the Post Closing Covenants Agreement, the Company will agree
that, until the later of (a) three years from the date thereof or (b) the date
when the applicable statutes of limitations with respect to all Federal income
tax liabilities of UST for periods ending prior to or on the Closing Date have
run, it will (i) as of any date of determination, maintain consolidated
shareholders' equity of not less than the lesser of (x) $150 million and (y) the
greater of (1) 95% of the consolidated shareholders' equity of the Company at
January 1, 1996, and (2) the sum of (A) $135 million plus (B) on and after
January 1, 1997, the product of (I) $7.5 million multiplied by (II) the number
of the most recent preceding anniversary of December 31, 1995, and (ii) be a
"well capitalized" bank holding company within the meaning of the regulations of
the Board of Governors (as in effect on the date of the Post Closing Covenants
Agreement); except that, so long as the Company's Tier 1 capital leverage ratio
is 4.5% or above, the Company will not be deemed to be less than "well
capitalized" solely because its Tier 1 capital leverage ratio is less than 5%;
provided, however, that on or before September 30, 1995, the denominator used in
determining the Company's Tier 1 capital leverage ratio shall be the book value
of the average total consolidated assets (net of the allowance for loan losses)
of the Company following the Distribution.
The Company's Noncompetition Agreement
Pursuant to the Post Closing Covenants Agreement, the Company will agree
that:
(a) Until the fourth anniversary of the Effective Time, neither the Company
nor any subsidiary or affiliate of the Company will (i) in any way, directly or
indirectly, engage in the Restricted Processing Business (as defined below) in
the United States or Canada, or own, manage, operate, control or have an
interest greater than 5% of the voting stock or 25% of the total equity in any
enterprise which engages, directly or indirectly, in the Restricted Processing
Business in the United States or Canada; provided that the Company or any
subsidiary or affiliate of the Company may directly or indirectly acquire a
corporation or other entity or affiliated group of corporations or other
entities that is engaged in the Restricted Processing Business (an "Acquired
Person") so long as during the twelve-month period ending on the last day of the
month immediately preceding the month of such acquisition, revenues earned from
the Restricted Processing
26
<PAGE> 30
Business by such Acquired Person constituted no more than 15% of the aggregate
revenues of such Acquired Person, and each Acquired Person will be subject to
the noncompetition provisions of the Post Closing Covenants Agreement only with
respect to customers of such Acquired Person who were not customers on the date
immediately preceding the date such Acquired Person became an affiliate of the
Company; (ii) provide any customer or corporation, trust, foundation, endowment
or similar entity (other than those established and operated exclusively to
manage the assets or affairs of a family (a "Family Office")) having investible
assets of $50 million or more, with any of the following items in connection
with any assets held in custody or safekeeping by Chase or any affiliate, except
as provided in the Services Agreement: (A) securities lending and investment of
related collateral, (B) securities and commodities clearing services or (C)
foreign exchange services; or (iii) provide any customer with any of the
following items in connection with any assets with respect to which Chase or any
affiliate provides Processing Services: (A) cash balance sweep services, (B)
except with respect to assets for which the Company or any subsidiary exercises
investment management for certain customers, certain cash management services or
(C) extensions of credit to investment companies and other commingled investment
funds.
(b) Until the third anniversary of the Effective Time, the Company will not
solicit for employment certain specified employees to be retained by the Chase
Parties. In addition, from and after the Effective Time, neither the Company nor
any of its subsidiaries will disclose or make use of certain confidential
information related to the Processing Business and the Related Back Office.
(c) In the event that there is a direct or indirect Change of Control (as
defined below), the Company and New Trustco will cease to be bound by the
noncompetition provisions of the Post Closing Covenants Agreement, and upon six
months notice by Chase, Chase may treat such Change of Control as a termination
of the Services Agreement by New Trustco and cease providing Restricted
Processing Services under the Services Agreement on or after six months after
the Change of Control.
The following definitions relate to paragraphs (a) through (c) described
above:
"Bundled Services" means the provision of certain administration
services, custody services or trust services as included services, and
without separate charge, together with the exercise of substantial
management discretion over 50% or more of the investible assets in the
account for which such included services are provided.
"Change of Control" means any direct or indirect acquisition of the
Company or New Trustco by any other institution, including without
limitation, a merger of the Company or New Trustco with an unaffiliated
institution (or any affiliate of such institution) having total assets of
$2 billion or more or shareholders' equity of $200 million or more.
"Restricted Processing Business" means the Processing Business;
provided, however, that the term "Restricted Processing Business" shall not
include any services that would, but for this proviso, constitute services
of the "Restricted Processing Business", to the extent such services are
provided in connection with any of the following: (i) certain mutually
agreed upon existing relationships; (ii) assets with respect to which the
Company or any subsidiary or affiliate of the Company exercises investment
management; (iii) individuals, estates, family trusts or Family Offices;
(iv) any corporation, limited liability company, trust, partnership,
foundation or endowment or other entity having, at the time of the
acceptance of the relationship, investible assets of less than $50 million
or, at any time the services are provided other than as Bundled Services,
investible assets of less than $100 million; (v) any collective investment
trust maintained exclusively by New Trustco or another bank or trust
company affiliate; (vi) the corporate trust and agency business of the
Company, New Trustco or any of their affiliates, (vii) subject to clause
(iv) above, the asset and investment management of the Company, New Trustco
or any of their affiliates; (viii) subject to clause (iv) above, the
private banking business of the Company, New Trustco and any of their
affiliates, (ix) any service provided to the Company or a subsidiary or
affiliate of the Company for its own account or (x) any relationship for
which Chase serves as subcustodian to the Company or any subsidiary or
affiliate of the Company (other than pursuant to the Services Agreement).
27
<PAGE> 31
TERMS OF THE TAX ALLOCATION AGREEMENT
Prior to the Time of Distribution, Chase, UST and the Company will enter
into a Tax Allocation Agreement which sets forth each party's rights and
obligations with respect to payments and refunds, if any, of Federal, state,
local or foreign taxes for periods before and after the Distribution and related
matters such as the filing of tax returns and the conduct of the claims made by
the Service and other taxing authorities.
In general, under the Tax Allocation Agreement, the Company will be
responsible for taxes imposed on UST or any of its subsidiaries with respect to
a tax period ending on or before the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
UST has requested the Private Letter Ruling from the Service substantially
to the effect that, among other things, the Distribution will qualify as
tax-free to UST and its stockholders under Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code") and that the Asset Transfers will not be
taxable transactions. Receipt of the Private Letter Ruling reasonably
satisfactory to each of UST and Chase is a condition to the respective
obligations of UST and Chase to consummate the Merger and it is a condition to
each of the Company's and UST's obligation to consummate the Distribution that
all conditions to the Merger be satisfied. See "The Distribution -- Terms of the
Distribution Agreement -- Conditions to the Distribution". Assuming that the
Private Letter Ruling is received, the following is a summary of the material
Federal income tax consequences of the Distribution:
1. A UST stockholder will not recognize any income, gain or loss as a
result of the Distribution.
2. A UST stockholder will apportion its tax basis for its UST Common
Stock between such UST Common Stock and Company Common Stock received in
the Distribution in proportion to the relative fair market values of such
UST Common Stock and Company Common Stock on the Distribution Date.
3. A UST stockholder's holding period for the Company Common Stock
received in the Distribution will include the period during which such
stockholder held the UST Common Stock with respect to which the
Distribution was made, provided that such UST Common Stock is held as a
capital asset by such stockholder as of the Time of Distribution.
4. No gain or loss will be recognized to UST as a result of the
Distribution.
Current Treasury regulations require each UST stockholder who receives
Company Common Stock pursuant to the Distribution to attach to its federal
income tax return for the year in which the Distribution occurs a detailed
statement setting forth such data as may be appropriate in order to show the
applicability of Section 355 of the Code to the Distribution. UST (or the
Company on its behalf) will convey the appropriate information to each UST
stockholder of record as of the Distribution Record Date.
RELATIONSHIP WITH CHASE
Following the Merger, the Company will continue to have certain
relationships with Chase and its subsidiaries.
POST CLOSING COVENANTS AGREEMENT; TAX ALLOCATION AGREEMENT
In the Post Closing Covenants Agreement and the Tax Allocation Agreement,
Chase, UST and USTNY, on the one hand, and the Company and New Trustco, on the
other hand, will agree to indemnify each other after the Distribution with
respect to certain losses, damages, claims and liabilities arising primarily
from the conduct of the Chase Acquired Business, as well as certain tax
liabilities. See "The Distribution -- Terms of the Post Closing Covenants
Agreement" and "-- Terms of the Tax Allocation Agreement". In addition, the
Company has agreed, pursuant to the Post Closing Covenants Agreement, for a
period of four years after the Effective Time, not to engage in, or compete with
Chase with respect to, the Chase Acquired Business, subject to certain limited
exceptions. See "The Distribution -- Terms of the Post Closing Covenants
Agreement -- The Company's Noncompetition Agreement".
28
<PAGE> 32
SERVICES AGREEMENT
In the Merger, Chase will acquire the Related Back Office, which includes
software and hardware necessary to conduct the Chase Acquired Business. Certain
core software, principally software to operate the Asset Management System, will
be transferred to New Trustco and licensed by New Trustco to USTNY on a
perpetual nonexclusive basis. Although the Related Back Office primarily serves
the Processing Business, it also provides necessary services to the Core
Businesses, all of which will be transferred to New Trustco and its affiliates
pursuant to the Contribution Agreement. Accordingly, prior to the Time of
Distribution, New Trustco and USTNY will enter into the Services Agreement.
Pursuant to the Services Agreement, USTNY will agree to furnish necessary
securities processing, custodial, data processing and other services (the "Back
Office Services") to New Trustco and its affiliates. The Services Agreement will
be in a form, and on terms, agreed to by UST and Chase on or before February 28,
1995, substantially in accordance with the terms of the Services Agreement Term
Sheet entered into on November 18, 1994, between UST and Chase. Following the
Merger, USTNY will be merged (the "Bank Merger") with and into The Chase
Manhattan Bank (National Association) ("CMB"). In the Bank Merger, CMB will
acquire the rights, and assume the obligations, of USTNY under the Services
Agreement.
The parties intend that the Back Office Services furnished to New Trustco
and its affiliates under the Services Agreement will include all of the
functions that are currently performed by the Related Back Office, as well as
certain bank processing services, such as loan processing services, deposit and
check processing services (the "Bank Processing Services"). The Back Office
Services may be modified to reflect reasonable evolution or change in the
business of New Trustco and its affiliates. The Back Office Services will not
include any broker dealer services, securities industry banking services or
back-up servicing.
Under the Services Agreement, CMB will provide the Back Office Services to
New Trustco for an initial term of five years beginning on the Closing Date.
With CMB's consent (which CMB may withhold in its sole discretion), New Trustco
may extend the initial term of the Services Agreement for an additional five
years. If CMB withholds such consent, New Trustco may in any case extend the
term of the Services Agreement for an additional two years.
In consideration of the Back Office Services provided to it under the
Services Agreement, during the initial term, New Trustco will pay to CMB an
annual base fee of $10 million, which is significantly less than New Trustco's
estimate of the annual cost of providing such services itself. The annual base
fee for any additional term after the initial term will be an amount equal to
110% of the total fees paid by New Trustco in the fifth year of the initial
term.
The annual base fee will cover all Back Office Services required by normal
growth of New Trustco and its affiliates, and will include, as well, certain
base levels of systems development and maintenance resources. CMB will charge
New Trustco at rates discounted from CMB's prevailing rates for similar
institutional business for any incremental Back Office Services attributable to
additional growth, evolution in the business of New Trustco and its affiliates,
and certain other new business.
CMB may assign the Bank Processing Services or other data center services
provided under the Services Agreement to a third party, without New Trustco's
consent, provided the third party will also be providing such services to CMB.
CMB may not assign the remaining services to a third party, although it may sell
or transfer responsibility for the Back Office Services together with the sale
or transfer of the Chase business unit providing such Back Office Services. New
Trustco will not have the right to assign the Services Agreement without CMB's
consent.
Either party may terminate the Services Agreement upon a material breach by
the other which has not been cured within 30 days after the expiration of a
15-day informal dispute resolution process initiated by the nonbreaching party.
Either party may terminate in the event that the other party becomes insolvent
or bankrupt or undergoes a change of control.
New Trustco may terminate the Services Agreement for any reason effective
after the end of the first year by giving six months' advance notice. In the
event of such a termination, New Trustco will pay CMB a
29
<PAGE> 33
termination fee of $2.5 million dollars, which fee will be reduced incrementally
over the term of the Services Agreement.
In the event of any termination or expiration of the Services Agreement
(including termination due to any material breach of New Trustco), the Services
Agreement will obligate CMB to provide for up to one year (six months in the
case of a change in control) after the termination or expiration, in
consideration of fees in amounts to be negotiated, reasonably requested
termination assistance to facilitate a smooth transition of the responsibility
for the performance of the Back Office Services to New Trustco or its designee.
LISTING AND TRADING OF COMPANY COMMON STOCK
There is no existing trading market for the Company Common Stock and there
can be no assurance as to the establishment or continuity of any such market.
The Company expects to apply for listing of the Company Common Stock on the
National Market System. It is a condition to each of the Company's and UST's
obligation to consummate the Distribution that the Company Common Stock shall
have been designated as a security on the National Market System by the NASD, or
listed on the New York or American Stock Exchange subject to official notice of
issuance. See "The Distribution -- Terms of the Distribution
Agreement -- Conditions to the Distribution". However, there can be no assurance
as to the price at which the Company Common Stock will trade or that such price
will not be significantly below the book value per share of the Company Common
Stock.
The Company Common Stock received by UST stockholders pursuant to the
Distribution will be freely transferable under the Securities Act, except for
shares of such Company Common Stock received by any person who may be deemed an
"affiliate" of the Company within the meaning of Rule 145 under the Securities
Act. Persons who may be deemed to be affiliates of the Company after the
Distribution generally include individuals or entities that control, are
controlled by, or are under common control with, the Company, and may include
the directors and principal executive officers of the Company as well as any
principal stockholder of the Company. Persons who are affiliates of the Company
will be permitted to sell their Company Common Stock received pursuant to the
Distribution only pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from registration, such as the
exemptions afforded by Section 4(2) of the Securities Act and Rule 144
thereunder.
30
<PAGE> 34
CAPITALIZATION
The following table sets forth, as of September 30, 1994, the combined
historical capitalization of the Company and its combined capital, as adjusted
to reflect the disposition of the Chase Acquired Business pursuant to the
Distribution and the Merger (the "Disposition") and the other related
restructuring transactions. For financial reporting purposes, the Company is a
"successor registrant" to UST and, as a result, the historical financial
information of the Company set forth below and included elsewhere in this
Information Statement is the historical financial information of UST. This
information should be read in conjunction with the Selected Financial Data and
Pro Forma Condensed Financial Statements included elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
-------------------------------------------------------
DISPOSITION OTHER COMPANY
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Deposits..................................... $2,383,209 $ (681,250) $ 0 $1,701,959
========= ========= ========= =========
Short-Term Borrowings........................ $1,187,958 $ (824,966) $ 66,852 $ 429,844
========= ========= ========= =========
Long-Term Debt............................... $ 62,574 -- $ (42,403) $ 20,171
========= ========= ========= =========
Stockholders' Equity
Common Stock -- $1.00 Par Value.............. $ 11,512 -- $ (1,890) $ 9,622
Capital Surplus.............................. 70,190 -- (70,190) 0
Retained Earnings............................ 264,806 -- (93,161) 171,645
Treasury Stock at Cost....................... (85,895) -- 85,895 0
Loan to ESOP................................. (16,171) -- -- (16,171)
Unrealized Gain (Loss), Net of Taxes, on
Securities Available for Sale.............. (4,805) -- 4,805 0
---------- ----------- ----------- ----------
Total Stockholders' Equity................... $ 239,637 $ -- $ (74,541) $ 165,096
========= ========= ========= =========
</TABLE>
- ---------------
See "Notes to Pro Forma Condensed Financial Statements" on pages 37 through 40.
31
<PAGE> 35
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed statement of condition as of
September 30, 1994, unaudited pro forma condensed statements of income for the
year ended December 31, 1993 and the nine-month period ended September 30, 1994,
and unaudited pro forma condensed statement of average balances for the
nine-month period ended September 30, 1994 (collectively, the "Pro Forma
Statements"), were prepared to present the estimated effects of the disposition
of the Chase Acquired Business, related restructuring transactions and the
effect of the Services Agreement as if such transactions had occurred for
statement of condition purposes as of September 30, 1994 and for statement of
income purposes as of January 1, 1993.
The "Disposition Adjustments" column in each of the Pro Forma Statements
includes the following:
- the reduction in assets, liabilities and the elimination from
operations of the revenue and expenses related to the disposition of
the Chase Acquired Business, and
- the reduction in Securities and Short-Term Investments and
Short-Term Borrowings arising from the Company's rebalancing of its
asset and liability structure.
The "Other Adjustments" column in each of the Pro Forma Statements includes
the following:
- the balance sheet impact of the nonrecurring adjustments as set
forth in footnote (1) of the Notes to Pro Forma Condensed Financial
Statements, and
- the ongoing impact on the Company's results of operations arising
from the nonrecurring adjustments and the Services Agreement.
All of the pro forma adjustments are based upon available information and
upon certain assumptions that the Company believes are appropriate and include
only "exit costs" as defined in Emerging Issues Task Force Issue 94-3 ("EITF
94-3") that are directly related to the transactions. The information is not
intended to be indicative of the Company's actual results had the transactions
occurred as of the dates indicated above nor do they purport to indicate results
which may be attained in the future.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the historical financial statements and other financial
information relating to UST. For financial reporting purposes, the Company will
be a "successor registrant" to UST and, as a result, the historical financial
information set forth in the Pro Forma Statements is the historical financial
information of UST.
The Distribution will be accounted for by the Company as if UST had
continued in existence, with the carrying amounts of the assets and liabilities
being distributed being accounted for in accordance with generally accepted
accounting principles at their historical values.
32
<PAGE> 36
PRO FORMA CONDENSED STATEMENT OF CONDITION
SEPTEMBER 30, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY
BEFORE
DISPOSITION OTHER OTHER COMPANY
HISTORICAL ADJUSTMENTS(A) ADJUSTMENTS ADJUSTMENTS PRO FORMA(l)
---------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash
Equivalents............. $ 439,819 $ (282,852) $ 156,967 $ (42,545)(b) $ 114,422
Securities................ 1,731,890 (997,945) 733,945 -- 733,945
Net Loans, After Allowance
for Credit Losses....... 1,555,191 (164,448) 1,390,743 -- 1,390,743
Other Assets.............. 291,631 (74,927) 216,704 53,906 (c) 270,610
---------- -------------- ----------- ----------- ------------
Total Assets.............. $4,018,531 $ (1,520,172) $ 2,498,359 $ 11,361 $2,509,720
========= =========== ========= ========= ==========
LIABILITIES
Deposits.................. $2,383,209 $ (681,250) $ 1,701,959 $ -- $1,701,959
Short-Term Borrowings..... 1,187,958 (824,966) 362,992 66,852 (d) 429,844
Accounts Payable and
Accrued Liabilities..... 145,153 (13,956) 131,197 61,453 (e) 192,650
Long-Term Debt............ 62,574 -- 62,574 (42,403)(f) 20,171
---------- -------------- ----------- ----------- ------------
Total Liabilities......... 3,778,894 (1,520,172) 2,258,722 85,902 2,344,624
---------- -------------- ----------- ----------- ------------
STOCKHOLDERS' EQUITY
Common Stock -- $1.00 Par
Value................... 11,512 -- 11,512 (1,890)(g) 9,622
Capital Surplus........... 70,190 -- 70,190 (70,190)(h) 0
Retained Earnings......... 264,806 -- 264,806 (93,161)(i) 171,645
Treasury Stock at Cost.... (85,895) -- (85,895) 85,895 (j) 0
Loan to ESOP.............. (16,171) -- (16,171) -- (16,171)
Unrealized Gain (Loss),
Net of Taxes, on
Securities Available for
Sale.................... (4,805) -- (4,805) 4,805 (k) 0
---------- -------------- ----------- ----------- ------------
Total Stockholders'
Equity.................. 239,637 -- 239,637 (74,541) 165,096
---------- -------------- ----------- ----------- ------------
Total Liabilities and
Stockholders' Equity.... $4,018,531 $ (1,520,172) $ 2,498,359 $ 11,361 $2,509,720
========= =========== ========= ========= ==========
CAPITAL RATIOS
As a Percentage of Risk-Adjusted
Period End Total Assets:
Tier 1 Capital....................................................................... 11.56%
Total Capital........................................................................ 12.64%
Tier 1 Leverage........................................................................... 6.36%
</TABLE>
33
<PAGE> 37
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVERSAL
OF BACK COMPANY
OFFICE & BEFORE
DISPOSITION CORPORATE OTHER OTHER COMPANY
HISTORICAL ADJUSTMENTS(M) STAFF(N) ADJUSTMENTS ADJUSTMENTS PRO FORMA(1)
---------- -------------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income....... $ 116,242 $ (53,399) $ -- $ 62,843 $ -- $ 62,843
Provision for Credit
Losses.................. 4,000 -- -- 4,000 -- 4,000
---------- -------------- --------- ----------- ----------- ------------
Net Interest Income After
Provision for Credit
Losses.................. 112,242 (53,399) -- 58,843 -- 58,843
Fees...................... 264,075 (92,938) -- 171,137 -- 171,137
Other Income.............. 11,888 (5,053) -- 6,835 (2,800)(o) 4,035
---------- -------------- --------- ----------- ----------- ------------
Total Revenue............. 388,205 (151,390) -- 236,815 (2,800) 234,015
---------- -------------- --------- ----------- ----------- ------------
Operating Expenses
Salaries and Benefits..... 189,153 (61,855) 19,125 146,423 (36,604)(p) 109,819
Net Occupancy............. 40,035 (9,360) 4,143 34,818 (6,066)(p) 28,752
Other..................... 86,332 (38,915) 23,003 70,420 (11,610)(p) 58,810
---------- -------------- --------- ----------- ----------- ------------
Total Operating
Expenses................ 315,520 (110,130) 46,271 251,661 (54,280) 197,381
---------- -------------- --------- ----------- ----------- ------------
Income Before Income Tax
Expense................. 72,685 (41,260) (46,271) (14,846) 51,480 36,634
Income Tax Expense(q)..... 30,418 (18,567) (20,822) (8,971) 23,166 14,195
---------- -------------- --------- ----------- ----------- ------------
Net Income................ $ 42,267 $ (22,693) $ (25,449) $ (5,875) $ 28,314 $ 22,439
========= ========== ======== ======== ======== ==========
Net Income Per Share:(r)
Primary................. $ 4.26 $ 2.22
========= ==========
Average Shares
Outstanding:
Primary................. 9,968,033 10,253,000
========= ==========
</TABLE>
34
<PAGE> 38
PRO FORMA CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVERSAL
OF BACK COMPANY
OFFICE & BEFORE COMPANY
DISPOSITION CORPORATE OTHER OTHER PRO
HISTORICAL ADJUSTMENTS(M) STAFF(N) ADJUSTMENTS ADJUSTMENTS FORMA(1)
---------- -------------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income....... $ 82,391 $ (32,579) $ -- $ 49,812 $ -- $ 49,812
Provision for Credit
Losses.................. 1,500 -- -- 1,500 -- 1,500
---------- -------------- --------- ----------- ----------- ----------
Net Interest Income After
Provision for Credit
Losses.................. 80,891 (32,579) -- 48,312 -- 48,312
Fees...................... 219,965 (76,931) -- 143,034 -- 143,034
Other Income.............. 9,720 (4,406) -- 5,314 (1,394)(o) 3,920
---------- -------------- --------- ----------- ----------- ----------
Total Revenue............. 310,576 (113,916) -- 196,660 (1,394) 195,266
---------- -------------- --------- ----------- ----------- ----------
Operating Expenses
Salaries and Benefits..... 153,080 (50,439) 14,646 117,287 (27,568)(p) 89,719
Net Occupancy............. 29,445 (7,519) 3,071 24,997 (3,601)(p) 21,396
Other..................... 65,097 (27,861) 16,072 53,308 (5,512)(p) 47,796
---------- -------------- --------- ----------- ----------- ----------
Total Operating
Expenses................ 247,622 (85,819) 33,789 195,592 (36,681) 158,911
---------- -------------- --------- ----------- ----------- ----------
Income Before Income Tax
Expense................. 62,954 (28,097) (33,789) 1,068 35,287 36,355
Income Tax Expense(q)..... 26,441 (12,644) (15,205) (1,408) 15,879 14,471
---------- -------------- --------- ----------- ----------- ----------
Net Income................ $ 36,513 $ (15,453) $ (18,584) $ 2,476 $ 19,408 $ 21,884
========= ========== ======== ======== ======== ==========
Net Income Per Share:(r)
Primary................. $ 3.69 $ 2.15
========= ==========
Average Shares
Outstanding:
Primary................. 9,964,307 10,284,000
========= ==========
</TABLE>
35
<PAGE> 39
PRO FORMA CONDENSED STATEMENT OF AVERAGE BALANCES
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DISPOSITION ADJUSTMENTS
---------------------------
CHASE ASSET-
ACQUIRED LIABILITY OTHER COMPANY
HISTORICAL BUSINESS REBALANCING ADJUSTMENTS(T) PRO FORMA
---------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash
Equivalents.............. $ 344,565 $ (152,994) $ -- $(42,545) $ 149,026
Securities and Short-Term
Investments.............. 1,978,198 (826,813) (425,000) -- 726,385
Net Loans, After Allowance
for Credit Losses........ 1,260,793 1,260,793
Other Assets............... 452,058 (172,658)(s) -- 53,906 333,306
---------- ----------- ----------- -------------- ----------
Total Assets............... $4,035,614 $(1,152,465) $ (425,000) $ 11,361 $2,469,510
========= ========== ========= =========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits................... $2,985,188 $(1,117,465) $ -- $-- $1,867,723
Short-Term Borrowings...... 591,500 -- (425,000) 66,852 233,352
Accounts Payable and
Accrued Liabilities...... 168,846 (35,000) -- 61,453 195,299
Long-Term Debt............. 62,861 -- -- (42,403) 20,458
Stockholders' Equity....... 227,219 -- -- (74,541) 152,678
---------- ----------- ----------- -------------- ----------
Total Liabilities and
Stockholders' Equity..... $4,035,614 $(1,152,465) $ (425,000) $ 11,361 $2,469,510
========= ========== ========= =========== =========
</TABLE>
36
<PAGE> 40
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(a) Disposition Adjustments (Pro Forma Condensed Statement of
Condition) -- The Disposition Adjustments presented in the Pro Forma Condensed
Statement of Condition reflect both the disposition of the Chase Acquired
Business and the rebalancing of the Company's overall asset and liability
structure as a result of the Merger and related restructuring. See "The
Merger -- Terms of the Contribution Agreement" and "-- Terms of the Distribution
Agreement". The Pro Forma Condensed Statement of Average Balances presents the
Company's daily average balance sheet for the nine-month period ended September
30, 1994 adjusted for the Merger, including the rebalancing of the Company's
asset and liability structure and the Other Adjustments.
During the nine-month period ended September 30, 1994, the Chase Acquired
Business generated average non-interest bearing deposits of approximately $1,117
million. Investable Deposits, defined as total average non-interest bearing
deposits less average cash items in the process of collection and average
overdrafts, were approximately $827 million during the nine-month period ended
September 30, 1994. The predictability of the Investable Deposits provided UST
with a long- and medium-term funding source. UST employed a substantial portion
of the Investable Deposits to finance its long-term financial assets, including
approximately $425 million of investment securities, principally U.S. Government
Agency Securities ("Agency Securities"), classified as held to maturity.
Following the execution of the Merger Agreement, the Investable Deposits ceased
to be a long-term source of financing available to UST since they would be
included in the Chase Acquired Business. Accordingly, in anticipation of the
closing of the Merger and the effective transfer of the Chase Acquired Business
to Chase, UST sold approximately $800 million of long- and medium-term U.S.
Government Treasury Securities ("Treasury Securities") and Agency Securities.
The proceeds of such sale will be included in the Chase Acquired Business. (See
note (m)).
(b) Cash and Cash Equivalents -- The $42.5 million adjustment is comprised
of the estimated payments of investment banking, legal, accounting, consulting
and printing professional fees ($12,000,000 -- determined based upon actual
invoices and estimates supplied by the various vendors), the estimated amount of
payments necessary to cash-out holders of outstanding stock options
($39,045,000), and the estimated amount of cash to be received from the exercise
of certain incentive stock options ($8,500,000 -- assumes the exercise of
approximately 236,000 incentive stock options at an average exercise price of
$36.00 per option).
(c) Other Assets -- The $53.9 million increase in Other Assets reflects (i)
certain tax benefits resulting from the Disposition Adjustments and the Other
Adjustments ($66,353,000, reduced by $4,125,000 related to the reversal of
deferred tax benefits previously recorded attributable to the fair value
adjustment for securities available for sale) and (ii) the write-off of the net
book value of premises and equipment ($3,798,000) and computer software
($4,524,000) related to the termination of various leases.
(d) Short-Term Borrowings -- The $66.9 million increase in short-term
borrowings reflects the borrowings required to replace accrued interest and
long-term debt (see notes (e) and (f)), and to replace the shortfall resulting
from the loss incurred on the sale of securities held to maturity.
(e) Accounts Payable and Accrued Liabilities -- The $61.5 million increase
in accounts payable and accrued liabilities includes estimated severance costs
($21,100,000), the estimated present value (discounted at 8%) of the cost of
terminating leases at discontinued locations ($8,202,000), the estimated cost of
terminating computer hardware leases, software licenses and contracts
($28,462,000), the estimated cost of terminating certain incentive compensation
plans ($5,100,000) and an amount to record the reversal in accrued interest
payable related to the redemption and satisfaction and discharge of certain
issues of long-term debt ($1,411,000). The estimated severance costs consist of
$12,700,000 of cash severance payments and the impact of curtailment gains,
enhanced pension credits and cost of living adjustments with respect to the
Company's defined benefit pension and post-retirement benefit plans for
specifically identified employees and $8,400,000 of payments of transition
bonuses to certain UST employees associated with the Chase Acquired Business.
37
<PAGE> 41
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(f) Long-Term Debt -- The $42.4 million reduction in long-term debt
reflects the redemption of the USTNY 8 1/2% Capital Notes Due 2001 and the
satisfaction and discharge of the UST 8% Notes Due 1996. The cost of redeeming
and defeasing this long-term debt is insignificant to the Company's pro forma
results of operations.
(g) Common Stock -- The $1,890,000 decrease in Company Common Stock
reflects the retirement of treasury stock ($2,126,000) offset by the aggregate
par value amount of the shares to be issued pursuant to the exercise of an
estimated 236,000 incentive stock options at an estimated average exercise price
of $36.00 per share ($236,000).
(h) Capital Surplus -- The $70.2 million adjustment reflects the retirement
of treasury stock ($78,454,000) offset, in part, by the amount of cash proceeds
in excess of the par value received in connection with the expected exercise of
236,000 incentive stock options ($8,264,000).
(i) Retained Earnings -- The $93.2 million adjustment reflects the
after-tax impact of the nonrecurring adjustments presented in note (l) below
($87,846,000) and the amount by which the book value of treasury stock retired
exceeds capital surplus ($5,315,000).
(j) Treasury Stock at Cost -- The adjustment of $85.9 million reflects the
retirement of treasury stock.
(k) Unrealized Gain (Loss), Net of Taxes, on Securities Available for
Sale -- The adjustment of $4.8 million ($8.9 million before taxes) reflects the
reversal of unrealized losses on securities available for sale that were
realized upon the sale of such securities.
(l) The Pro Forma Statements of Income exclude the following material
nonrecurring adjustments directly related to the transaction which are expected
to be incurred prior to or as a result of the consummation of the Merger.
However, the Pro Forma Statements of Income do include the effect of such
adjustments on the operations of the Company. The Merger is expected to occur
within the next twelve months.
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Loss on sale of securities held to maturity (see note (d))................ $ 23.0
Loss on sale of securities available for sale (see note (k)).............. 8.9
Severance, post-retirement benefits and related costs (see note (e))...... 21.1
Professional fees (see note (b)).......................................... 12.0
Cost of terminating leases for premises (see notes (c) and (e))........... 12.0
Cost of terminating computer hardware leases, computer software licenses,
contracts and capitalized software (see notes (c) and (e)).............. 33.0
Cost of incentive compensation plans that are being terminated (see note
(e)).................................................................... 5.1
Payout for stock options (see note (b))................................... 39.1
----------
154.2
Applicable tax benefit.................................................... 66.4
----------
Total..................................................................... $ 87.8
========
</TABLE>
In conjunction with the announcement of the Distribution and the Merger,
the Company disclosed that it may incur up to $110 million of restructuring
charges on an after-tax basis in connection with the Distribution and the
Merger. The difference between the $110 million and the charges described above
represents charges that do not presently meet the definition of "exit costs" as
defined by EITF 94-3 and the loss on the sale of securities as described below.
The pro forma adjustments for the loss on the sale of securities ($31.9
million loss before taxes, $16.8 million after taxes) are based upon the market
values of the securities on September 30, 1994. The
38
<PAGE> 42
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
$110 million of restructuring charges include an estimated loss for the sale of
securities based upon market values as of the date that the Merger Agreement was
announced (November 18, 1994). The actual loss on the sale of securities, $44.2
million before taxes, $23.3 million after taxes, was realized between November
21, 1994 and December 9, 1994.
While the amounts set forth above represent the Company's best estimate of
the restructuring costs that will be incurred, the ultimate level of such
charges will not be precisely determinable until the Closing Date. The cost of
terminating computer hardware leases takes into consideration the estimated
residual value of the equipment when it is returned to the lessor. Such residual
values could be severely impacted and the cost of terminating the leases
increased if the manufacturer releases upgraded versions of the equipment prior
to the lease termination date.
The Company continues to review its staffing requirements. This review will
be completed by the Closing Date and may result in lower staffing levels.
Accordingly, the cost of severance and related benefits may range from the above
listed $21.1 million to approximately $24.0 million.
The payout for stock options is based upon various assumptions, including
the Determined Value (as defined under "Effect of Transactions on UST Employees
and UST Benefit Plans -- Retained Plans" in the Proxy Statement-Prospectus to
which this Information Statement is attached as Appendix H) of the shares of UST
Common Stock, the number of stock options that are outstanding as of the Closing
Date and the average exercise price of such outstanding options. As a result,
the actual amount of the cash payment to be made in respect of stock options
will not be determinable until the Closing Date.
Pursuant to the Post Closing Covenants Agreement, the Company has agreed to
maintain a minimum net worth for four years following the Distribution. See "The
Distribution -- Terms of the Post Closing Covenants Agreement -- Minimum Net
Worth". After giving effect to the charges set forth in this note (l), the
Company believes that its initial annual dividend will be $1.00 per share. See
"Special Factors -- Dividends and Dividend Policy".
(m) Disposition Adjustments (Pro Forma Condensed Statement of
Income) -- The Disposition Adjustments reflect the disposition of the Chase
Acquired Business pursuant to the Distribution and the Merger. The Disposition
Adjustments include the revenues and expenses of the Chase Acquired Business as
allocated in accordance with the allocation methodologies utilized by the
Company's internal management reporting system. The amount of net interest
income is based upon the average Investable Deposits multiplied by an
appropriate interest rate. The rate is based upon the rates earned by the
Company's long- and short-term securities. The rates were 5.44% for the
nine-month period ended September 30, 1994, and 5.39% for the year ended
December 31, 1993.
While the average Investable Deposits for the nine-month period were
approximately $827 million, the Investable Deposits are subject to seasonal
fluctuation. Historically, Investable Deposits are higher in the first and third
quarters than in the second and fourth quarters. The Average Investable Deposits
for the first and third quarters of 1994 were $1,119 million and $833 million,
respectively. The Investable Deposits for the second quarter of 1994 were $555
million. During 1993, Investable Deposits for the first and third quarters were
$1,096 million and $1,227 million, respectively, compared with $783 million and
$845 million, for the respective second and fourth quarters of 1993. As a result
of the Investable Deposits' seasonality, the Chase Acquired Business' relative
contribution of net interest income to UST is significantly greater during the
first and third quarters than in the second and fourth quarters. The disposition
of the Chase Acquired Business substantially eliminates the seasonal
fluctuations in the Company's net interest income.
Fees and Other Income represent amounts earned by the Chase Acquired
Business. In addition, fees earned by the Company's asset management business
from customers of the Chase Acquired Business are
39
<PAGE> 43
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
included in Fees and Other Income, which fees are expected to be earned by Chase
following the Distribution and the Merger. Expenses reflect direct costs
incurred and allocations of other costs in accordance with the Company's
internal management reporting system.
(n) Back Office and Corporate Staff -- The $46.3 million and $33.8 million
of back office and corporate staff charges for the year ended December 31, 1993,
and nine months ended September 30, 1994, respectively, are derived from the
Company's internal management accounting system and represent the amounts
allocated to the Chase Acquired Business for services provided. Back office
support costs include securities processing and custody, check clearance and
computer services processing and support and corporate staff cost allocations
include financial, personnel, legal and general services support functions. Such
back office support costs have been added to the expenses of the Company Before
Other Adjustments because such costs were not eliminated in connection with the
disposition of the Chase Acquired Business. The estimated downsizing of the
corporate staff and the impact of the Services Agreement are reflected in the
Other Adjustments.
(o) Other Income -- Reflects the elimination of certain revenues generated
from computer processing activities conducted for third parties which will no
longer be provided following the Distribution and the Merger.
(p) Salaries and Benefits, Net Occupancy and Other Expenses -- Reflects the
reduction of personnel, net occupancy costs and other expenses, as indicated,
resulting from the Distribution and the Merger, the downsizing of the Company's
corporate staff and the Services Agreement.
(q) Income Taxes -- Income taxes reflected in the Pro Forma Statements of
Income are recorded at the statutory Federal tax rate of 35%, adjusted for the
impact of state and local taxes and nondeductible items. The resulting effective
tax rate for the Company was approximately 39% in both periods presented.
Taxes have been calculated on the "Other Adjustments" in the Pro Forma
Statement of Condition at the statutory Federal tax rate of 35%, adjusted for
state and local taxes and nondeductible items. The resulting effective tax rate
was approximately 43%. The Company anticipates realizing these tax benefits in
the periods in which the adjustments are reported on the Company's tax returns.
(r) Pro Forma Net Income Per Share -- Net income per share has been
calculated on a basis consistent with the Company's past practices and was
determined by dividing "Net Income -- Company Pro Forma" by the estimated fully
diluted average shares outstanding for each period. Estimated fully diluted
average shares outstanding include the actual average shares outstanding for
each of the periods, the assumed exercise of approximately 236,000 stock options
and the dilutive effects of approximately 675,000 phantom shares granted under
the Transferred Plans. Dividends paid on phantom shares have been added back to
net income on an after-tax basis for this calculation.
(s) For the purposes of determining the Pro Forma Condensed Statement of
Average Balances, the Chase Acquired Business average overdrafts are included in
Other Assets.
(t) For the purposes of determining the Pro Forma Condensed Statement of
Average Balances, all Other Adjustments are assumed to have occurred as of
January 1, 1994.
40
<PAGE> 44
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
each of the five fiscal years through the period ended December 31, 1993 and for
the nine months ended September 30, 1994 and 1993. The information has been
derived from the audited financial statements and the unaudited financial
statements of the Company. For financial reporting purposes, the Company is a
"successor registrant" to UST and as a result, the historical financial
information of the Company set forth below and elsewhere in this Information
Statement is the historical financial information of UST. The selected financial
data of the Company for the nine-month periods ended September 30, 1994 and
1993, in management's opinion, includes all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of financial
position and the results of operations of the Company for the unaudited interim
periods. Historical financial information may not be indicative of the Company's
performance following the Distribution. The selected financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" which follows this section.
The results for the nine-month period ended September 30, 1994 are not
necessarily indicative of the results to be expected for 1994. See the Pro Forma
Condensed Statements of Income included elsewhere herein for per share data
presented on a pro forma basis, adjusted to reflect the Distribution and the
Merger.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Fiduciary and Other Fees....................... $ 220.0 $ 193.7 $ 264.1 $ 235.8 $ 204.9 $ 184.2 $ 177.8
Net Interest Income............................ 82.4 88.6 116.2 108.9 96.1 89.4 83.3
Provision for Credit Losses.................... (1.5) (3.5) (4.0) (6.0) (6.0) (8.4) (1.6)
Other Income................................... 9.7 6.5 11.9 9.7 8.7 13.0 16.6
-------- -------- -------- -------- -------- -------- --------
Total Operating Income Net of Interest Expense
and Provision for Credit Losses............... 310.6 285.3 388.2 348.4 303.7 278.2 276.1
Total Operating Expenses....................... 247.6 227.8 315.5 289.5 254.9 259.7 232.9
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Income Tax
Expense and Cumulative Effect of Accounting
Changes....................................... 63.0 57.5 72.7 58.9 48.8 18.5 43.2
Income Tax Expense............................. 26.5 24.4 30.4 22.4 17.4 6.8 12.5
-------- -------- -------- -------- -------- -------- --------
Income from Operations Before Cumulative Effect
of Accounting Changes......................... 36.5 33.1 42.3 36.5 31.4 11.7 30.7
Cumulative Effect of Changes in Accounting for
Postretirement Benefits and Income Taxes...... -- -- -- (7.8) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income..................................... $ 36.5 $ 33.1 $ 42.3 $ 28.8 $ 31.4 $ 11.7 $ 30.7
-------- -------- -------- -------- -------- -------- --------
Per Common Share:
Primary:
Income From Operations Before Cumulative
Effect of Accounting Changes................ $ 3.69 $ 3.35 $ 4.26 $ 3.76 $ 3.32 $ 1.24 $ 3.08
Cumulative Effect of Changes in Accounting for
Postretirement Benefits and Income Taxes.... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income.................................... $ 3.69 $ 3.35 $ 4.26 $ 2.96 $ 3.32 $ 1.24 $ 3.08
-------- -------- -------- -------- -------- -------- --------
Fully Diluted:
Income From Operations Before Cumulative
Effect of Accounting Changes................ $ 3.68 $ 3.34 $ 4.25 $ 3.74 $ 3.27 $ 1.23 $ 3.07
Cumulative Effect of Changes in Accounting for
Postretirement Benefits and Income Taxes.... -- -- -- (.80) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income.................................... $ 3.68 $ 3.34 $ 4.25 $ 2.94 $ 3.27 $ 1.23 $ 3.07
-------- -------- -------- -------- -------- -------- --------
Cash Dividends Declared Per Share.............. 1.50 1.41 1.88 1.72 1.60 1.60 1.52
At Period End:
Total Assets.................................. $ 4,019 $ 3,690 $ 3,186 $ 2,951 $ 2,917 $ 2,778 $ 2,526
Total Deposits................................ 2,383 2,554 2,487 2,355 2,108 2,040 1,987
Long-Term Debt................................ 63 67 65 65 69 71 75
Stockholders' Equity.......................... 240 217 229 197 182 166 177
Earnings Ratios:
Return on Average Total Assets................ 1.21% 1.16% 1.11% 0.83% 1.09% 0.46% 1.26%
Return on Average Stockholders' Equity........ 21.48% 21.67% 20.47% 15.28% 18.05% 6.75% 17.29%
Capital Ratios:
As a Percentage of Risk-Adjusted Period End
Total Assets:
Tier 1 Capital................................ 14.19% 13.23% 14.08% 13.71% 10.81% 9.90% 9.99%
Total Capital................................. 15.51% 14.71% 15.47% 15.16% 12.03% 11.22% 11.26%
Tier 1 Leverage................................ 5.70% 5.11% 5.60% 5.78% 6.68% 6.72% 7.60%
</TABLE>
- ---------------
*Columns may not total due to roundings.
41
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For financial reporting purposes, the Company is a "successor registrant"
to UST and, as such, all financial information of the Company included in this
discussion and included elsewhere in this Information Statement is the
historical financial information of UST. Therefore, references to the "Company"
in this discussion are references to "UST" when referring to historical
information.
The following is a discussion of the Company's results of operations and
financial condition for the comparable nine months ended September 30, 1994 and
1993, and for each of the years ended December 31, 1993, 1992 and 1991. See
"Recent Developments" for a discussion of the Company's unaudited results for
the year and three-month period ended December 31, 1994. Where appropriate,
references are made to the Pro Forma Financial Statements, which reflect the
Disposition. Certain items reported in prior periods have been reclassified to
conform to the current presentation.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1993
Net income for the third quarter ended September 30, 1994 was $12.9
million, an increase of 8.6% over the $11.9 million earned in the third quarter
of 1993. For the nine-month period ended September 30, 1994, net income was
$36.5 million, a 10.2% improvement over the $33.1 million of net income for the
same period in 1993.
The Company's return on average stockholders' equity for the first nine
months of 1994 was 21.5%, compared to 21.7% for the first nine months of 1993.
Its return on average total assets was 1.21% for the nine months ended September
30, 1994, versus 1.16% for the nine months ended September 30, 1993.
Net Interest Income (Taxable Equivalent Basis)
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH PERIODS
PERIODS ENDED
SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------- -------------------
1994 1993 1994 1993
------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income....................................... $50,378 $45,497 $136,762 $128,674
Taxable Equivalent Adjustment......................... 1,183 1,364 3,554 4,420
------- ------- -------- --------
Total Interest Income................................. 51,561 46,861 140,316 133,094
Interest Expense...................................... 22,365 13,909 54,371 40,115
------- ------- -------- --------
Net Interest Income................................... $29,196 $32,952 $ 85,945 $ 92,979
======= ======= ======== ========
</TABLE>
Net interest income, on a taxable equivalent basis, was $3.8 million lower
in the third quarter of 1994, compared to the third quarter of 1993. For the
first nine months of 1994, net interest income, on a taxable equivalent basis,
was $7.0 million lower than net interest income for the first nine months of
1993.
42
<PAGE> 46
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1994 1993 1994 1993
------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Average Volume
Interest Earning Assets..................................... $3,358 $3,391 $3,269 $3,114
Interest Bearing Liabilities................................ 2,153 1,776 2,001 1,691
------ ------ ------ ------
Net Interest Earning Assets................................. $1,205 $1,615 $1,268 $1,423
====== ====== ====== ======
Non-Interest Bearing Deposits............................... $1,607 $1,963 $1,639 $1,776
====== ====== ====== ======
Average Rates (Taxable Equivalent Basis)
Interest Earning Assets..................................... 6.12% 5.50% 5.73% 5.71%
Cost of Funding Interest Earning Assets..................... 2.65 1.63 2.22 1.72
------ ------ ------ ------
Net Yield on Interest Earning Assets........................ 3.47% 3.87% 3.51% 3.99%
====== ====== ====== ======
</TABLE>
The Company's net interest income is sensitive to its volume of
non-interest bearing deposits which are primarily derived from the Processing
Business, as well as to the level of interest rates on interest-earning assets
and interest-bearing liabilities. The Company's level of non-interest bearing
funds (primarily non-interest bearing deposits) for the third quarter of 1994
decreased 25.4% ($411 million) from the same period during 1993. For the first
nine months of 1994, the Company's average volume of non-interest bearing funds
declined 10.9% ($155 million) from the same period during 1993. These declines
were principally a result of a reduction in the amount of the Processing
Business' balances. For the nine month period ended September 30, 1994, the
Processing Business' averaged $1,117 million compared with $1,300 million for
the 1993 period.
The Processing Business' non-interest bearing deposit balances are
seasonal. Historically, non-interest bearing deposit balances related to the
Processing Business are higher in the first and third quarters than in the
second and fourth quarters. The average non-interest bearing deposit balances
for the first and third quarters of 1994 derived from the Processing Business
were approximately $1,370 million and $1,126 million, respectively, compared
with $832 million of average non-interest bearing deposit balances for the
second quarter. As a result, the Processing Business' relative contribution of
net interest income to the Company was significantly higher during each of the
first and third quarters relative to its contribution during the second quarter
of 1994. This seasonality has been evident during each of the three years ended
December 31, 1993.
The volume of the Processing Business' non-interest bearing deposits is
generally inversely related to the level of interest rates. Thus, in periods of
decreasing interest rates, the average balance of non-interest bearing deposits
derived from the Processing Business tends to increase, whereas in periods of
rising interest rates, the average balance typically declines. Interest rates
were low in 1993 and the Processing Business experienced its highest level of
average deposit balances.
The Company's consolidated average non-interest bearing deposit balances
for the third quarter of 1994 were $1,607 million, compared to $1,963 million
for the third quarter of 1993. The Processing Business' average non-interest
bearing deposit balances were $1,126 million and $1,519 million, respectively,
for the third quarter of 1994 and 1993.
The net yield on average interest-earning assets was 3.47% for the third
quarter and 3.51% for the nine months ended September 30, 1994, compared to
3.87% for the third quarter and 3.99% for the nine months ended September 30,
1993. The average interest rate earned on the Company's securities portfolio was
5.43% for the third quarter of 1994, compared to 5.59% for the third quarter of
1993. For the first nine months of 1994, the average interest rate earned in the
Company's securities portfolio was 5.21%, as compared to 5.78% for the first
nine months of 1993. The lower average interest rate earned in the third quarter
and nine-month
44
<PAGE> 47
periods of 1994, as compared with the same periods in 1993, reflects the
reinvestment of the funds obtained from maturities and sales of securities at
lower interest rates and with shorter maturities.
Fee Income
<TABLE>
<CAPTION>
THREE-MONTH
PERIODS ENDED NINE-MONTH PERIODS
SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ % -------------------- %
1994 1993 CHANGE 1994 1993 CHANGE
------- ------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fiduciary and Other Fees:
Core Businesses:
Asset Management.............. $42,354 $38,688 9.5% $127,005 $110,909 14.5%
Corporate Trust and Agency.... 5,465 4,682 16.7 16,029 13,938 15.0
------- ------- -------- --------
Total Core Businesses....... 47,819 43,370 10.3 143,034 124,847 14.6
------- ------- -------- --------
Processing Business:
Funds Services................ 19,072 17,094 11.6 56,533 50,452 12.1
Institutional Asset
Services.................... 6,922 6,099 13.5 20,398 18,442 10.6
------- ------- -------- --------
Total Processing Business... 25,994 23,193 12.1 76,931 68,894 11.7
------- ------- -------- --------
Total Fiduciary and Other Fees..... 73,813 66,563 10.9 219,965 193,741 13.5
Other Income:
Securities Gains (Losses), Net..... 25 (3) -- 2,059 22 --
Other.............................. 3,138 2,123 47.8 7,661 6,486 18.1
------- ------- -------- --------
Total Fee Income................... $76,976 $68,683 12.1% $229,685 $200,249 14.7%
======= ======= ====== ======== ======== ======
</TABLE>
Total fiduciary and other fees increased $7.3 million in the third quarter
of 1994 from the third quarter of 1993. The first nine months of 1994 include
six months, or $3.8 million, of fiduciary and other fees attributable to U.S.
Trust Company of the Pacific Northwest ("Pacific Northwest"), formerly Capital
Trust Company, a trust and investment management firm acquired on July 7, 1993.
Excluding such $3.8 million of fiduciary and other fees, the Core Businesses'
fiduciary and other fee income would have been 11.1% higher than such fee income
for the comparable 1993 period. In the third quarter of 1994, $35.8 million of
the Core Businesses' fiduciary and other fees were related to the market value
of assets held in clients' accounts, compared with $34.7 million in the third
quarter of 1993. For the nine-month period ended September 30, 1994, $107.1
million of the Core Businesses' fiduciary and other fees were related to the
market value of assets held in clients' accounts, compared with $99.6 million
for the nine-month period ended September 30, 1993. The remaining fiduciary and
other fees of the Core Businesses were related to transaction-based services.
Total assets under management increased 5.5% to $32.4 billion at September
30, 1994, compared to $30.7 billion at September 30, 1993. The Processing
Business included approximately $2.6 billion of assets under management as of
September 30, 1994, compared to $1.8 billion as of September 30, 1993.
Substantially all of these assets derive from short-term cash management account
relationships. In addition, the Processing Business included approximately $3.9
billion of assets from security lending relationships with corporate and
institutional custody clients which are reported in the table below under
"Processing Business -- Custody and Other Non-Managed Assets". The average rates
charged for short-term cash management and security lending services are
significantly less than the average rates charged on the entire portfolio of
assets under management. It is anticipated that substantially all of those
assets under management, including the security lending relationships, will be
managed by Chase following the Disposition. Fee income generated by these
activities is included in the Processing Business' fiduciary fees and other
income. Total assets under management and administration increased 7.5% to
$419.3 billion at September 30, 1994,
44
<PAGE> 48
compared to $390.1 billion at September 30, 1993. The following table details
assets under management and administration for the Company and the Processing
Business as of September 30, 1994 and 1993.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- %
1994 1993 CHANGE
------ ------ ------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C>
Core Businesses:
Assets Under Management........................................... $ 32.4 $ 30.7 5.5%
Personal Custody.................................................. 7.7 8.5 (8.8)
Corporate and Municipal Trusteeships and Agency Relationships*.... 156.3 147.4 6.0
------ ------
Total Assets Under Management and Administration for the Core
Businesses.................................................. 196.4 186.6 5.3
------ ------ ------
Processing Business:
Custody and Other Non-Managed Assets:
Institutional Services.......................................... 116.0 100.3 15.6
Funds Services**................................................ 106.9 103.2 3.6
------ ------
Total Assets Under Management and Administration for the
Processing Business........................................ 222.9 203.5 9.5
------ ------
Total Assets Under Management and Administration.................. $419.3 $390.1 7.5%
====== ====== =====
</TABLE>
- ---------------
* Includes corporate trust and agency and bond immobilization assets presented
at par value.
** Includes UIT assets presented at par value and mutual fund custody assets
presented at fair market value.
Other Income
Net securities gains in the third quarter of 1994 and both the third
quarter and first nine months of 1993 were negligible. Net securities gains
totaled $2.1 million for the first nine months of 1994, reflecting the sale of
certain securities classified as available for sale, mainly Treasury Securities,
during the first quarter.
See "-- Impact of the Disposition on Liquidity" for a discussion of
securities sold by the Company during the fourth quarter of 1994.
Total Revenues
Total revenues, defined as net interest income after the provision for
credit losses and fee income, for the Core Businesses and the Processing
Business for the nine-month periods ended September 30, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
NINE-MONTH
PERIODS ENDED
SEPTEMBER 30,
---------------------
1994 1993
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Core Businesses Revenues............................... $196,660 $168,476
Processing Business Revenues........................... 113,916 116,832
-------- --------
Total Revenues......................................... $310,576 $285,308
======== ========
</TABLE>
Revenues of the Core Businesses and the Processing Business are based upon
the allocation methodologies utilized by the Company's internal management
reporting system. The amount of net interest income allocated to each business
is based upon the average net deposit balances supplied by each business
multiplied by an appropriate internally-generated interest rate. The "net
deposit" balances consist of both interest and
45
<PAGE> 49
non-interest bearing deposit balances reduced by overdraft loans and cash items
in the process of collection. The internally-generated interest rate is based
upon the actual interest rates earned by the Company on long-and short-term
securities for the relevant period. Fee revenue is allocated directly to the
businesses performing the service from which the revenue is derived.
Operating Expenses
<TABLE>
<CAPTION>
THREE-MONTH
PERIODS ENDED NINE-MONTH PERIODS
SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------- % ------------------- %
1994 1993 CHANGE 1994 1993 CHANGE
------- ------- ------ -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Salaries...................................... $34,253 $30,895 (10.9 )% $100,530 $ 88,311 (13.8 )%
Employee Benefits and Incentive
Compensation................................ 15,787 16,722 5.6 52,550 50,729 (3.6 )
------- ------- -------- --------
Total Salaries and Benefits................... 50,040 47,617 (5.1 ) 153,080 139,040 (10.1 )
Net Occupancy................................. 10,312 9,947 (3.7 ) 29,445 29,442 --
Equipment..................................... 4,794 4,420 (8.5 ) 13,541 13,044 (3.8 )
Other......................................... 17,376 16,344 (6.3 ) 51,556 46,283 (11.4 )
------- ------- -------- --------
Total Operating Expenses...................... $82,522 $78,328 (5.4 )% $247,622 $227,809 (8.7 )%
======== ======== ======= ========= ========= =======
</TABLE>
Operating expenses in the third quarter of 1994 increased $4.2 million to
$82.5 million from the $78.3 million reported in the third quarter of 1993. For
the nine months ended September 30, 1994, operating expenses amounted to $247.6
million, a $19.8 million increase over the $227.8 million incurred in the nine
months ended September 30, 1993. Salaries and employee benefit expenses,
including sales incentives and commissions, increased $2.4 million in the third
quarter and $14.0 million for the first nine months of 1994, as compared to the
same periods in 1993, reflecting increases in the professional staffs of the
asset management and mutual funds services divisions and related employee
benefit expenses. For the third quarter of 1994, the ratio of total operating
expenses to taxable equivalent total operating income, net of interest expense
and provision for credit losses, was 78.1%, compared to 77.8% for the third
quarter of 1993. For the nine months ended September 30, 1994, the ratio of
total operating expenses to taxable equivalent total operating income, net of
interest expense and provision for credit losses, was 78.8%, as compared to
78.6% for the first nine months ended September 30, 1993.
46
<PAGE> 50
Operating expenses applicable to the Core Businesses and the Processing
Business for the nine-month periods ended September 30, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
NINE-MONTH PERIODS
ENDED SEPTEMBER 30,
----------------------
1994 1993
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Core Businesses:
Salaries and Benefits........................ $ 89,483 $ 79,447
Net Occupancy................................ 15,278 13,784
Other........................................ 37,706 30,394
--------- ---------
Subtotal..................................... 142,467 123,625
--------- ---------
Processing Business:
Salaries and Benefits........................ 50,439 49,216
Net Occupancy................................ 7,519 6,806
Other........................................ 27,861 21,766
--------- ---------
Subtotal..................................... 85,819 77,788
--------- ---------
Corporate Overhead............................. 19,336 26,396
--------- ---------
Total Operating Expenses............. $ 247,622 $ 227,809
======== ========
</TABLE>
Operating expenses associated with the Core Businesses and the Processing
Business are determined by the Company's internal management accounting
information system. The Company's management accounting practices and policies
have been developed and implemented with the objective of reflecting the
economics of the respective businesses. Direct costs are those expenses that can
be directly attributable to a specific business activity. Direct expenses
include actual salaries and benefits of the employees of the business, net
occupancy costs based upon actual space utilized and furniture and equipment
specifically employed by the business.
The Company has developed methodologies to capture and allocate expenses
that are not directly incurred by the businesses but for which there is a direct
relationship between the level of business activity and the amount of cost
incurred. Such methodologies employ volume or percentage allocation bases or the
activity of other expense or balance sheet accounts. Indirect costs include
computer, securities clearing and bank operations transfer charges which are
allocated on the basis of volume statistics.
Corporate overhead consists of unallocated costs not specifically
attributable to the respective businesses, including financial, legal and other
general purpose corporate expenses.
Income Taxes
The Company's effective tax rate for the 1994 third quarter was 41.1%,
compared with an effective tax rate of 43.1% for the 1993 period. The 1993 tax
rate included the impact of the increase in the federal corporate income tax
rate, which was retroactive to January 1, 1993. For the nine months ended
September 30, 1994, the effective tax rate was 42.0% versus 42.4% in 1993.
47
<PAGE> 51
YEAR ENDED DECEMBER 31, 1993 COMPARED TO THE YEAR ENDED DECEMBER 31, 1992 AND
YEAR ENDED DECEMBER 31, 1992 COMPARED TO THE YEAR ENDED DECEMBER 31, 1991:
Income from operations for the year ended December 31, 1993 amounted to
$42.3 million, an increase of 15.7% over the $36.5 million earned in the year
ended December 31, 1992. For the year ended December 31, 1992 compared to the
year ended December 31, 1991, income from operations increased 16.4%.
Net Interest Income (Taxable Equivalent Basis)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest Income............................................ $169,600 $173,211 $191,354
Taxable Equivalent Adjustment.............................. 5,810 8,237 10,228
-------- -------- --------
Total Interest Income...................................... 175,410 181,448 201,582
Interest Expense........................................... 53,358 64,323 95,256
-------- -------- --------
Net Interest Income........................................ $122,052 $117,125 $106,326
======== ======== ========
Percentage Increase from Prior Period...................... 4.2% 10.2% 4.8%
======== ======== ========
</TABLE>
Significant influences on the Company's net interest income over the past
three years included: the average balance of net non-interest bearing funds
primarily attributable to the Processing Business; a reduction in the average
yield on short-term and variable rate investments and loans; and an increase in
total interest earning assets.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Average Volume
Interest Earning Assets......................................... $3,086 $2,834 $2,447
Interest Bearing Liabilities.................................... 1,699 1,674 1,606
------ ------ ------
Net Interest Earning Assets..................................... $1,387 $1,160 $ 841
====== ====== ======
Percentage Increase from Prior Period........................... 19.6% 38.0% 12.5%
Non-Interest Bearing Deposits................................... $1,761 $1,508 $1,021
====== ====== ======
Percentage Increase from Prior Period........................... 16.8% 47.7% 11.2%
====== ====== ======
Average Rates (Taxable Equivalent Basis)
Interest Earning Assets......................................... 5.68% 6.40% 8.24%
Cost of Funding Interest Earning Assets......................... 1.73 2.27 3.89
------ ------ ------
Net Yield on Interest Earning Assets............................ 3.95% 4.13% 4.35%
====== ====== ======
</TABLE>
The net yield on interest earning assets is dependent upon the Company's
average level of non-interest bearing funds, the maturity structure of the
Company's interest earning assets and interest bearing liabilities and the
general interest rate environment. If the average volume of such funds is
stable, the net yield will generally be higher in a rising interest rate
environment. Conversely, in a declining interest rate environment, the net yield
will be lower.
Temporary inflows of deposits, mainly related to the Processing Business,
are invested in high quality liquid short-term financial instruments that ensure
the Company an adequate rate of return, while maintaining liquidity and credit
quality to satisfy the eventual outflow of the deposits.
48
<PAGE> 52
During 1993, average interest earning assets increased by $148 million of
private banking loans and $160 million of short-term financial instruments. The
higher volume of average interest earning assets was funded primarily by
increases in average net non-interest bearing funds, derived principally from
the Processing Business.
The increase in average interest earning assets during 1992 was primarily
attributable to increases in private banking loans ($168 million) and high
quality securities ($365 million). The level of average short-term financial
instruments was reduced during this period ($178 million) and replaced by
Treasury Securities having an average maturity of less than one year. The higher
volume of average interest earning assets was funded mainly by increases in
average net non-interest bearing funds, principally related to the Processing
Business.
Fee Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, % CHANGE
------------------------------ -------------
1993 1992 1991 93-92 92-91
-------- -------- -------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fiduciary and Other Fees:
Core Businesses:
Asset Management............................. $152,362 $131,188 $113,031 16.1 % 16.1 %
Corporate Trust and Agency................... 18,775 16,916 15,251 11.0 10.9
-------- -------- --------
Total Core Businesses................... 171,137 148,104 128,282 15.6 15.5
-------- -------- --------
Processing Business:
Funds Services............................... 68,196 63,412 53,603 7.5 18.3
Institutional Asset Services................. 24,742 24,308 23,063 1.2 5.4
-------- -------- --------
Total Processing Business............... 92,938 87,720 76,666 5.9 14.4
-------- -------- --------
Total Fiduciary and Other Fees.................... 264,075 235,824 204,948 12.0 15.1
Other Income:
Securities Gains, Net............................. 3,025 2,801 1,558 8.0 79.8
Other............................................. 8,863 6,939 7,165 27.7 (3.2 )
-------- -------- --------
Total Fees and Other Income....................... $275,963 $245,564 $213,671 12.4 % 14.9 %
======== ======== ======== ==== ====
Total Fees and Other Income as a Percent of
Taxable Equivalent Operating Income, Net of
Interest Expense and Provision for Credit
Losses.......................................... 70.0% 68.8% 68.1%
======== ======== ========
</TABLE>
Fiduciary and other fees are the largest component of both the Core
Businesses and Processing Business revenues. Fee-based services provide a
relatively stable core source of revenues that are less subject to change in
periods of interest rate volatility as compared to net interest income. The
credit loss experience from fee-based activities has been and continues to be
negligible.
Fiduciary fees are based typically on the market value or par value of
assets under management and administration, the volume of securities
transactions, income collection transactions and other services rendered.
Most asset management fees are determined on an incremental scale so that
as the value of a client's portfolio grows in size, the Company receives a
smaller percentage of the increasing value as fee income. Therefore, market
value or other incremental changes in a portfolio's size do not necessarily have
a proportionate impact on the level of fiduciary fees.
For the year ended December 31, 1993, $133.8 million of the Core
Businesses' fiduciary and other fees were related to the market value of assets
held in clients' accounts, compared with $119.8 million and
49
<PAGE> 53
$103.3 million, respectively, for the years ended December 31, 1992, and 1991.
The remaining fiduciary and other fees of the Core Businesses were related to
transaction-based services.
The following table provides details of assets under management and
administration for the last six years. Unless otherwise noted, asset values are
measured at their estimated fair value.
<TABLE>
<CAPTION>
COMPOUND
DECEMBER 31, GROWTH
--------------------------------------------------- RATE
1993 1992 1991 1990 1989 1988 88-93
------ ------ ------ ------ ------ ------ --------
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Core Businesses:
Assets Under Management............. $ 32.2 $ 26.5 $ 21.9 $ 18.1 $ 18.0 $ 15.3 16.0%
Personal Custody.................... 7.9 6.0 6.8 6.1 4.7 4.2 13.5
Corporate and Municipal Trusteeships
and Agency Relationships*......... 152.2 134.6 121.5 109.6 102.3 89.3 11.3
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration for the Core
Businesses..................... 192.3 167.1 150.2 133.8 125.0 108.8 12.1
------ ------ ------ ------ ------ ------
Processing Business:
Custody and Other Non-Managed
Assets:
Institutional Services............ 97.6 92.9 81.8 81.6 68.0 57.9 11.0
Funds Services**.................. 103.3 91.8 84.3 62.4 54.3 51.7 14.9
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration for the
Processing Business............ 200.9 184.7 166.1 144.0 122.3 109.6 12.9
------ ------ ------ ------ ------ ------
Total Assets Under Management and
Administration.................... $393.2 $351.8 $316.3 $277.8 $247.3 $218.4 12.5%
====== ====== ====== ====== ====== ====== ========
</TABLE>
- ---------------
* Includes corporate trust and agency and bond immobilization assets presented
at par value.
** Includes UIT assets presented at par value and mutual fund custody assets
presented at fair market value.
Assets Under Management
Assets under management and administration consist primarily of equities,
fixed income instruments and cash. The Company's investment professionals manage
these assets for individual, family, pooled, and mutual funds investment
clients.
Asset management fiduciary fees are derived mainly from investment
management and related services to individuals and institutions. These services
include investment portfolio management, estate and tax planning and personal
custody. Asset management fiduciary fees are based primarily on the market value
of the assets in clients' accounts. In general, fiduciary fees are influenced by
a variety of factors, including growth or decline of stock and bond market
levels, fee increases, revenue from new services, outflow of assets due to
terminating trusts, disbursements, gifts, etc., acquisitions, and new business.
The increase in asset management fiduciary fees during 1993 is related to higher
market values, new business and acquisitions. Assets under management as of
December 31, 1993 increased by 21.8% from assets under management as of December
31, 1992.
Asset management fiduciary fees in 1993 include revenues from Pacific
Northwest, a trust and investment management firm acquired in July 1993, and a
full year of revenues from Campbell, Cowperthwait & Co., Inc. ("Campbell"), an
investment advisory company acquired in December 1992. Asset management
fiduciary fees in 1992 include revenues from Delafield, Harvey, Tabell
("Delafield"), an investment advisory company acquired in April 1992. Fiduciary
fees from these acquisitions amounted to less
50
<PAGE> 54
than 5% and 3% of total asset management fiduciary fees in 1993 and 1992,
respectively. These acquisitions accounted for 5.6% and 4.0% of assets under
management as of December 31, 1993 and 1992, respectively.
As previously noted, the Company believes it is well positioned to increase
fee revenue due to favorable growth rates in the overall affluent market,
expansion into new geographic markets, selective acquisitions, development of
new services, solicitation of new market segments and new business development.
Increases in fee revenue are expected to come from the Company's institutional
asset management business, where the Company has developed a dedicated sales
force and has expanded the range of investment products it offers. Another key
strategy for increasing fee revenues is the Company's recently implemented
initiative to broaden the distribution of its investment products via third
parties.
Corporate trust and agency activities include the indenture trustee
business for corporate and municipal debt issues, as well as complex new types
of securities. Corporate trust fiduciary fees are affected by the volume of new
debt issuances and redemptions at, or in advance of, maturity of existing
issues. The volume of corporate and municipal trusteeships and agency
relationships (measured by the par value of the outstanding debt) increased
13.1% in 1993 and 10.8% in 1992.
Assets Under Administration -- The Processing Business
Institutional asset services ("IAS") includes master trust and custody
services, securities lending and global custody services to corporate employee
benefit funds, public funds, financial institutions and endowments and
foundations. IAS fiduciary fees are influenced by the market value of its
accounts and transactional activity. IAS assets administered in custody accounts
increased 5.1% in 1993 and 13.6% in 1992.
Funds services provides custody administration, fund accounting and
administration and transfer agent activities for open and closed-end mutual
funds and custodian, recordkeeping, income collection and disbursement, and
transfer agent services for taxable and tax-exempt unit investment trusts.
Funds services assets under administration increased by 12.5% in 1993 and
8.9% in 1992. This increase in assets is primarily attributable to expanded
business with mutual funds, both open and closed-end. The par value of bonds
held in custody for unit investment trusts has declined over the past few years,
reflecting accelerated prerefundings and redemptions of municipal securities
underlying unit investment trusts by issuers taking advantage of decreasing
interest rates during the same period. While this has reduced fee income earned
from unit investment trusts, the redemption activity has also temporarily
increased the volume of non-interest bearing deposits reflecting uninvested
balances derived from these accounts.
Total Revenues
Total revenues, defined as net interest income after the provision for
credit losses and fee income, for the Core Businesses and the Processing
Business for the years ended December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Core Businesses Revenues................................... $236,815 $206,029 $178,010
Processing Business Revenues............................... 151,390 142,423 125,734
-------- -------- --------
Total Revenues............................................. $388,205 $348,452 $303,744
======== ======== ========
</TABLE>
Revenues of the Core Businesses and the Processing Business are allocated
in accordance with the allocation methodologies utilized by the Company's
internal management reporting system. The amount of net interest income
allocated to each business is based upon the average net deposit balances
supplied by each business multiplied by an appropriate, internally-generated,
interest rate. The "net deposit" balances consist of
51
<PAGE> 55
both interest and non-interest bearing deposit balances reduced by overdraft
loans and cash items in the process of collection. The internally-generated
interest rate is based upon the actual interest rates earned by the Company on
long- and short-term securities for the relevant period. Fee revenue is
allocated directly to the businesses performing the service from which the
revenue is derived.
Operating Expenses
The following table provides details of operating expenses other than
interest expense and provision for credit losses for the last three years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries................................................... $120,770 $104,506 $ 93,354
Employee Benefits and Incentive Compensation............... 68,383 60,426 47,877
Net Occupancy.............................................. 40,035 37,420 36,939
Equipment.................................................. 18,536 18,591 19,507
Other...................................................... 67,796 68,589 57,260
-------- -------- --------
Total...................................................... $315,520 $289,532 $254,937
======== ======== ========
Percentage Increase (Decrease) From Prior Period........... 9.0% 13.6% (1.8)%
======== ======== ========
Total Operating Expenses as a Percent of Taxable Equivalent
Operating Income, Net of Interest Expense and Provision
for Credit Losses........................................ 80.1% 81.2% 81.2%
======== ======== ========
</TABLE>
Salaries in 1993 increased 15.6% from 1992 and increased 11.9% in 1992 from
1991. The increases were due mainly to staff additions in the asset management
businesses and Processing Business. The number of full-time equivalent employees
increased 12.1% to 2,574 at December 31, 1993, compared to 2,296 at December 31,
1992. During 1992, the number of full-time equivalent employees increased 8.6%
to 2,296 from 2,114. Excluding the impact of the acquisitions of Delafield,
Campbell and Pacific Northwest, salaries increased by 13.3% in 1993 and 9.9% in
1992.
Employee benefits and incentive compensation increased 14.7% in 1993 from
1992 and increased 26.2% in 1992 compared with 1991. These changes were due
primarily to incentive award plans, which are determined based upon the
Company's financial performance as measured by its return on stockholders'
equity, and to other employee benefits whose expense level is a function of
staffing levels. In addition to the approximately 1,120 of the Company's
employees that will be employed by Chase following the Disposition, the Company
will reduce its staffing levels by approximately 153 employees, which will
reduce corporate staff salaries and related employee benefits and incentive
compensation by an estimated $12.4 million on an annualized basis. It is
anticipated that these employees will be terminated by the Closing Date.
Occupancy charges increased 7.0% in 1993 compared with 1992 and 1.3% in
1992 from 1991. The increases in 1993 and 1992 reflect the impact of the asset
management acquisitions. The Chase Acquired Business includes leased space in
the building located at 770 Broadway and the leased premises of MF Service
Company. As of the Closing Date, the transfer of those premises will reduce the
occupancy expense of the Company by approximately $11 million.
Equipment costs decreased 0.3% in 1993 and 4.7% in 1992 due to reductions
in the rates being charged on leased computer equipment.
Other expenses in 1993 decreased 1.2% compared to 1992, while increasing
19.8% in 1992 compared to 1991. The 1993 decline is a result, in part, of lower
costs related to real estate acquired in debt restructurings.
52
<PAGE> 56
As part of the Merger, Chase will acquire the Company's back office
operations. The Company will enter into the Services Agreement, pursuant to
which, after the Distribution, CMB will furnish necessary securities processing,
custodial, data processing and other services to the Company. The initial term
of the Services Agreement will be for five years beginning on the Closing Date,
with certain renewal options. In consideration of the services provided to it
under the Services Agreement, during the initial term, the Company will pay
Chase an annual base fee of $10 million, which is significantly less than the
Company's estimate of the annual cost of providing such services to itself. See
"Relationship with Chase".
Operating expenses applicable to the Core Businesses and the Processing
Business for the years ended December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Core Businesses:
Salaries and Benefits.................................... $108,481 $ 91,355 $ 77,165
Net Occupancy............................................ 18,778 16,996 16,223
Other.................................................... 46,143 46,652 37,236
-------- -------- --------
Subtotal................................................. 173,402 155,003 130,624
-------- -------- --------
Processing Business:
Salaries and Benefits.................................... 61,855 58,021 50,801
Net Occupancy............................................ 9,360 8,792 9,289
Other.................................................... 38,915 29,152 29,067
-------- -------- --------
Subtotal................................................. 110,130 95,965 89,157
Corporate Overhead......................................... 31,988 38,564 35,156
-------- -------- --------
Total Operating Expenses......................... $315,520 $289,532 $254,937
======== ======== ========
</TABLE>
Operating expenses associated with the Core Businesses and Processing
Business are determined by the Company's internal management accounting
information system. The Company's management accounting practices and policies
have been developed and implemented with the objective of reflecting the
economics of the respective businesses. Direct costs are those expenses that can
be directly attributable to a specific business activity. Direct expenses
include actual salaries and benefits of the employees of the business, net
occupancy costs based upon actual space utilized and furniture and equipment
specifically employed by the business.
The Company has developed methodologies to capture and allocate expenses
that are not directly incurred by the businesses but for which there is a direct
relationship between the level of business activity and the amount of cost
incurred. Such methodologies employ volume or percentage allocation bases or the
activity of other expense or balance sheet accounts. Indirect costs include
computer, securities clearing and bank operations transfer charges which are
allocated on the basis of volume statistics.
Corporate overhead consists of unallocated costs not specifically
attributable to the respective businesses, including financial, legal and other
general purpose corporate expenses.
Operating expenses for the Core Businesses as presented in the Pro Forma
Condensed Statement of Income for the year ended December 31, 1993 were $197.4
million compared with $205.4 million in the above table (Core Businesses
expenses of $173.4 million plus corporate overhead expenses of $32.0 million).
The difference between the amounts is a result of the Pro Forma Condensed
Financial Statements taking into account certain assumptions relating to the
reduction in the corporate staff, the Services Agreement between the Company and
Chase and the reduction in premises leased by the Company. See "Pro Forma
Condensed Financial Statements" and "Notes to Pro Forma Condensed Financial
Statements".
53
<PAGE> 57
Income Taxes
The effective tax rates on income before income taxes and cumulative effect
of accounting changes for 1993, 1992 and 1991 were 41.8%, 38.0% and 35.7%,
respectively. The increase in the 1993 effective tax rate is due to the decline
in tax-exempt income as a result of maturities and redemptions of state and
municipal bonds and the impact of the increase in the federal corporate income
tax rate that was retroactive to January 1, 1993.
FINANCIAL CONDITION
Capital and Regulatory Ratios
The Company has maintained its strong capital position throughout the first
nine months of 1994. The ratio of Tier 1 capital at September 30, 1994 to
period-end, risk-adjusted assets (as defined by the Board of Governors) was
14.19%, compared to 13.23% at September 30, 1993. The ratio of total capital at
September 30, 1994 to period-end, risk-adjusted assets was 15.51%. At September
30, 1993, this ratio was 14.71%. The Tier 1 leverage ratio (Tier 1 capital as of
the period end divided by quarterly (3 month) total average assets) was to 5.70%
and 5.11% at September 30, 1994 and 1993, respectively.
After the consummation of the Disposition, the Company expects that its
capital ratios will remain strong. On a pro forma basis as of September 30,
1994, the Company estimates that its ratio of Tier 1 capital to risk-adjusted
assets would have been 11.56%. Its ratio of total capital to risk-adjusted
assets would have been 12.64%. The Tier 1 leverage ratio would have amounted to
6.36%. See "Pro Forma Condensed Financial Statements".
For the nine-month period ended September 30, 1994, 90,000 shares of common
stock were acquired under the Company's share repurchase program at an average
price of $50.81 per share. For the same period during 1993, 110,500 shares were
repurchased at an average cost of $54.00 per share.
One of the principal purposes of the Company's common stock repurchase
program has been to provide a supply of common shares for issuance under the
Company's various common stock incentive and compensation plans. Such common
shares have been acquired through systematic purchases in the open market in
amounts deemed sufficient to satisfy the Company's immediate and near-term
(i.e., less than two years) obligations to issue common shares under its benefit
plans. During the first nine months of 1994, the Company issued 116,795 common
shares under its various stock-based plans.
The adoption of a stock repurchase program by the Company following the
Distribution would be subject to (i) the approval of the Company Board, (ii)
maintaining regulatory ratios necessary to remain "well capitalized", (iii)
maintaining appropriate parent company liquidity and (iv) existing statutory
authority that permits repurchases of shares in an amount that does not exceed
10% of the Company's stockholders' equity at the beginning of the year.
Asset/Liability Management
The principal functions of asset and liability management are to provide
for adequate liquidity, to manage interest rate exposure by maintaining a
prudent relationship between interest sensitive assets and interest sensitive
liabilities, and to manage the size and composition of the balance sheet so as
to maximize net interest income, while complying with bank regulatory agency
capital standards.
As part of its overall asset and liability management process, the Company
uses non-leveraged interest rate swaps and forward rate agreements ("FRAs") as
hedges. Swaps are used to hedge the net yield earned on pools of fixed rate
residential real estate mortgage loans originated in the year of the swap's
inception. The following table provides details, as of September 30, 1994, of
the notional amounts of swaps by maturity and the related average interest rates
paid and received. The Company is a fixed rate payor on all of its swaps.
54
<PAGE> 58
<TABLE>
<CAPTION>
MATURING
----------------------------------
WITHIN 1 1 TO 5
YEAR YEARS TOTAL
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed Pay Swaps............................................ $ 22,000 $ 45,875 $ 67,875
Average Rate Paid.......................................... 8.2949% 6.9952% 7.4165%
Average Rate Received*..................................... 4.9744% 4.9513% 4.9588%
</TABLE>
- ---------------
* Represents the average variable rate that will be received by the Company
based upon the rate in effect at the latest variable rate reset date of each
interest rate swap.
Customer deposit balances associated with the Processing Business have
provided the Company with a stable, long-term source of funds that historically
has been used to finance fixed-rate loans and investments. In the fourth quarter
of 1994, the Company sold over $800 million of Treasury and Agency Securities in
anticipation of the closing of the Merger and the resultant need to fund the
deposit balances being transferred as part of the Chase Acquired Business. The
Company will retain most, if not all, of its fixed rate loan portfolio. See
"Recent Developments". As a result, the Company's use of interest rate swaps as
an asset/ liability management tool is expected to increase, as a greater
proportion of the Company's fixed rate assets will be funded with short-term
interest bearing liabilities. In addition, the Company may issue term financing
or sell loans to maintain an appropriate matching of its asset/liability
structure.
The Company is currently negotiating a new multi-year $35 million credit
facility which the Company expects will have terms and conditions at least as
favorable as UST's existing credit facility. The Company expects that the new
credit facility will be finalized prior to the Closing Date.
The impact of the Company's hedging activities upon net interest income is
detailed in the following table.
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1994 1993 1994 1993
------- ------- ------- -------
(TAXABLE EQUIVALENT BASIS; DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Interest Income:
As Reported................................. $29,196 $32,952 $85,945 $92,979
Excluding Hedging Activities................ $29,484 $33,388 $88,812 $96,781
Net Yield on Interest Earning Assets:
As Reported................................. 3.47% 3.87% 3.51% 3.99%
Excluding Hedging Activities................ 3.51% 3.94% 3.62% 4.14%
</TABLE>
The preceding table presents the impact of the Company's hedging activities
on net interest income. The difference between the results "As Reported" and
"Excluding Hedging Activities" reflects the cost of utilizing swaps to hedge
interest rate risks and lock in a specified levels of return.
Securities Available for Sale
During the first nine months of 1994, the Company purchased $1,062.4
million of securities (primarily Treasury and Agency Securities ($936.5
million)) classified as available for sale.
The Company's portfolio of securities classified as available for sale is
principally comprised of the following: U.S. Treasury fixed rate obligations
with weighted average original maturities of one and one half years (68%);
Government National Mortgage Association ("GNMA") 15-year fixed rate
mortgage-backed securities ("Fixed Rate GNMAs"); and GNMA adjustable rate
mortgage-backed securities ("GNMA ARMs") (18%); obligations of states and
municipalities (5%) and variable rate collateralized mortgage
55
<PAGE> 59
obligations backed by GNMAs ("CMOs") (5%). GNMAs are backed by the full faith
and credit of the U. S. Government.
The market value of securities available for sale exceeded their amortized
cost by $16.5 million at December 31, 1993. At September 30, 1994, the amortized
cost of securities available for sale exceeded their market value by $8.9
million. The decrease in market value relative to amortized cost reflected
several factors. First, in the first quarter of 1994, high yielding available
for sale securities (mainly in Treasury Securities) were sold for a $2.0 million
dollar gain, and the proceeds from such sales, together with maturities, calls
and mandatory redemptions of securities of $258.6 million, were reinvested
(mainly in Treasury Securities) at then-lower prevailing interest rates. Second,
since the beginning of 1994, interest rates have gradually increased.
In January 1994, the Company sold $41.9 million of securities available for
sale. There were no sales of securities for the three-month period ended
September 30, 1994.
Securities Held to Maturity
During the first three months of 1994, the Company purchased $402.1 million
of securities classified as held to maturity, primarily consisting of Agency
Securities ($375.3 million).
In excess of 93% of the Company's securities classified as held to maturity
consist of Fixed Rate GNMAs and GNMA ARMs. The Company acquired $299.6 million
of Fixed Rate GNMAs in 1994. At September 30, 1994, the portfolio of Fixed Rate
GNMAs had a duration of approximately 4.4 years. Approximately 50% of the GNMA
ARMs were acquired in 1992 and 50% in the first three months of 1994. At
September 30, 1994, the portfolio of GNMA ARMs had a duration of approximately
1.3 years.
The market value of securities held to maturity at September 30, 1994 was
$425.0 million, which was $23.0 million less than their carrying amount. At
December 31, 1993, the market value of securities held to maturity was $87.1
million, which exceeded their carrying amount by $300,000. The decline in market
value reflects the increase in interest rates during the period December 31,
1993 through September 30, 1994.
Impact of the Disposition on the Investment Portfolio
The Company anticipates that after the Disposition its securities portfolio
will be concentrated in shorter term Treasury Securities and floating rate CMO's
collateralized by GNMA mortgage pass-through securities. A lesser amount will be
invested in GNMA mortgage pass-through securities and tax exempt state and
municipal obligations. Tax exempt, state and municipal securities are largely
fixed-rate investments with an average life of approximately 4.5 years and a
duration of approximately 3.5 years. GNMA securities are mostly 15 year original
maturity securities and 30 year original maturity securities with remaining
maturity of about 20 years. The average life of the GNMA portfolio is about 6
years and the duration is about 4 years.
The shorter term portfolio of Treasury Securities and floating rate CMO's
will be primarily used for liquidity. The GNMAs and state and municipal
obligations are intended to provide longer term returns with low credit risk.
Mortgage Securities and Prepayment Risk
At September 30, 1994, the Company held GNMA and CMO securities ("mortgage
securities") having a carrying value of approximately $717 million in its
available for sale and held to maturity securities' portfolios. While these
mortgage securities, as well as the Company's residential real estate mortgage
loans ("mortgage loans"), are subject to prepayment risk, management believed
that these were appropriate investments for the Company. Historically,
relatively high levels of non-interest bearing deposits derived from the
Processing Business helped to mitigate the prepayment risk associated with these
holdings.
56
<PAGE> 60
Impact of the Disposition on Liquidity
Historically, the Company has maintained strong liquidity at both the
parent and the operating subsidiaries. While the Disposition will have a
significant effect on capital resources and the overall asset and liability
structure, the Company believes that it will maintain sufficient liquidity at
each of its active subsidiaries.
In connection with the Disposition, USTNY will redeem its outstanding
8 1/2% Capital Notes Due 2001 (the "Capital Notes"). The funds required to
redeem the Capital Notes will be obtained through normal business operations.
The Company also will defease the $30 million balance of its 8% Notes due 1996.
The funding for such defeasance will be provided by cash on hand, dividends from
subsidiaries, and financing from outside sources now under negotiation. See
"Special Factors".
The Pro Forma Condensed Statement of Condition reflects an increase of
$66.9 million of short-term borrowings as a result of the Disposition and other
adjustments. Approximately $42.2 million is due to the elimination of the
Capital Notes and the 8% Notes Due 1996. The remaining increase in short-term
borrowings is a result of an assumption that the Company initially would
maintain a level of investment securities equal to the carrying amount of
securities that were sold. The after-tax proceeds from the sale were $24.6
million less than the carrying amount of the investment securities which were
sold. The amount for this line item is set forth in note (d) to "Notes to Pro
Forma Condensed Financial Statements".
Customer deposit balances associated with the Processing Business have
provided the Company with a stable, long-term source of funds that historically
has been used to finance fixed-rate loans and investments. In the fourth quarter
of 1994, the Company sold over $800 million of Treasury and Agency Securities in
anticipation of the closing of the Merger and the resultant need to fund the
deposit balances being transferred as part of the Chase Acquired Business.
Ongoing liquidity after the Disposition will be supplied by approximately
$1.9 billion of interest and non-interest bearing customer deposits associated
with the Core Businesses. Such customer deposits plus money market borrowings in
excess of the amounts needed to finance the loan portfolio will be invested
primarily in short-term Treasury Securities and floating rate investments.
Interest Rate Sensitivity
Interest rate risk arises from differences in the timing of repricing
assets and liabilities. One measure of interest rate risk is the difference in
asset and liability repricing on a cumulative basis within a specified time
frame. The following table provides the components of the Company's interest
rate sensitivity gaps at September 30, 1994. Gap analysis has inherent
limitations as an analytical tool because it only measures the Company's
exposure at a single point in time. Exposure to interest rates is constantly
changing as a result of the Company's ongoing business and its management
initiatives. Accordingly, the gap table cannot be used to predict the Company's
interest sensitivity position after the Disposition. Certain actions that the
Company has taken in response to the transaction have been described in "--
Impact of the Disposition on Liquidity" section.
57
<PAGE> 61
As set forth in the following table, as of September 30, 1994, the Company
had more liabilities repricing than assets (liability sensitive) through one
year. In general, when an enterprise is liability sensitive, its net interest
income will improve in a declining interest rate environment and will decline in
a rising interest rate environment. Conversely, an asset sensitive enterprise,
which the Company is in the 1 - 5 year time period, will realize a benefit in
net interest income if rates are rising and will have lower net interest income
in a falling rate environment.
<TABLE>
<CAPTION>
0-3 4-6 7-12 1-5 OVER
MONTHS MONTHS MONTHS YEARS 5 YEARS TOTAL
---------- --------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest Bearing Deposits with
Banks.............................. $ 74,855 -- -- -- -- $ 74,885
Securities Available for Sale and
Held to Maturity................... 406,389 145,139 234,504 756,599 189,259 1,731,890
Federal Funds Sold and Securities
Purchased Under Agreements to
Resell............................. 6,000 -- -- -- -- 6,000
Loans, Net of Allowance for Credit
Losses............................. 955,188 30,089 55,402 299,556 214,956 1,555,191
Cash and Other Non-Interest Earning
Assets............................. 421,298 26,299 28,679 69,447 104,842 650,565
---------- --------- --------- ---------- --------- ----------
Total Assets......................... 1,863,760 201,527 318,585 1,125,602 509,057 4,018,531
========== ========== ========== ========== ========== ==========
Liabilities and Stockholders' Equity
Non-Interest Bearing Deposits........ 190,948 31,251 62,501 375,748 450,500 1,110,948
Interest Bearing Deposits............ 1,246,101 7,414 11,331 7,415 -- 1,272,261
Federal Funds Purchased, Securities
Sold Under Agreements to Repurchase
and Other Borrowings............... 1,187,958 -- -- -- -- 1,187,958
Accounts Payable and Accrued
Liabilities........................ 34,790 25,450 23,591 29,059 32,263 145,153
Long-Term Debt....................... 1,650 2,737 1,000 52,984 4,203 62,574
Stockholders' Equity................. -- -- -- -- 239,637 239,637
---------- --------- --------- ---------- --------- ----------
Total Liabilities and Stockholders'
Equity............................. 2,661,447 66,852 98,423 465,206 726,603 4,018,531
---------- --------- --------- ---------- --------- ----------
Asset/(Liability) Sensitivity Gap.... (797,687) 134,675 220,162 660,396 (217,546) --
---------- --------- --------- ---------- --------- ----------
Interest Rate Swaps.................. 61,750 (12,125) (3,750) (45,875) -- --
---------- --------- --------- ---------- --------- ----------
Interest Rate Sensitivity Gap........ (735,937) 122,550 216,412 614,521 (217,546) --
---------- --------- --------- ---------- --------- ----------
Cumulative Interest Rate Sensitivity
Gap................................ $ (735,937) $(613,387) $(396,975) $ 217,546 $ -- $ --
========== ========== ========== ========== ========== ==========
</TABLE>
Following the Disposition, the Company will no longer have access to
non-interest bearing deposits derived from the Processing Business and has taken
actions to reduce its exposure to fixed-rate investments through its sale of
held to maturity securities portfolio and to rebalance its asset/liability mix
through the sale of certain available for sale securities. See
"-- Asset/Liability Management".
The Disposition will have no direct impact on the Company's private banking
loan portfolio. Slightly less than 50 percent of the current loan portfolio is
made up of fixed-rate mortgages. The fixed-rate mortgage portfolio has an
average maturity of about 5 years and a duration of about 3.5 years. While it is
anticipated that the portion of fixed-rate loans will remain about constant,
changes in the level and direction of interest rates will cause prepayments of
existing loans and origination of new fixed-rate loans to vary. Consequently,
the proportion of fixed-rate loans may vary from period to period.
58
<PAGE> 62
ASSET QUALITY
The Company's loan portfolio is comprised primarily of loans to private
banking customers. Average loans increased $222 million, or 19.8%, to $1.3
billion in the third quarter of 1994, from $1.1 billion in the third quarter of
1993. Residential real estate mortgages accounted for approximately 70% of the
increase in the portfolio.
An analysis of the allowance for credit losses follows.
<TABLE>
<CAPTION>
THREE-MONTH PERIODS NINE-MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
1994 1993 1994 1993
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, Beginning of Period.................. $14,017 $14,052 $13,393 $11,676
Provision Charged to Income................... 500 1,000 1,500 3,500
Recoveries.................................... 308 16 742 1,513
Charge-offs................................... (398) (801) (1,208) (2,422)
------- ------- ------- -------
Net (Charge Offs)............................. (90) (785) (466) (909)
------- ------- ------- -------
Balance, End of Period........................ $14,427 $14,267 $14,427 $14,267
======= ======= ======= =======
</TABLE>
The provision for credit losses in the third quarter of 1994 was $500,000,
compared to $1.0 million in the third quarter of 1993. As a percentage of
average loans for the quarter, net charge-offs for the third quarter of 1994, on
an annualized basis, were 3 basis points, compared to 28 basis points for the
third quarter of 1993.
The allowance for credit losses at September 30, 1994, was $14.4 million,
or 1.07% of average loans outstanding for the quarter. The allowance for credit
losses was $13.4 million, or 1.13% of average loans outstanding for the quarter
ended December 31, 1993, and $14.3 million, or 1.27% of average loans
outstanding for the quarter ended September 30, 1993.
The allowance for credit losses as a percentage of nonperforming loans was
268.71% at September 30, 1994, compared to 223.03% at December 31, 1993, and
286.60% at September 30, 1993. The ratio of nonperforming assets to average
loans and real estate owned for the quarter was 1.27% at September 30, 1994,
compared to 1.47% at December 31, 1993 and 1.51% at September 30, 1993. The
improvement in these ratios between December 31, 1993 and September 30, 1994,
reflects a net addition to the allowance for credit losses since December 31,
1993 as the provision has exceeded net loan charge-offs.
Nonperforming assets, which include non-accrual and restructured loans and
real estate acquired in debt restructurings, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1993 1993
------------- ------------ -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Non-Accrual and Restructured Loans....................... $ 5.4 $ 6.0 $ 5.0
Real Estate Owned Excluding Premises..................... 11.9 11.5 12.1
------ ------ ------
Total Nonperforming Assets............................... $17.3 $ 17.5 $17.1
========== ========== ==========
</TABLE>
After the consummation of the Disposition, the Company plans on maintaining
risk-adjusted capital ratios in excess of the "well capitalized" regulatory
requirement. The Company also plans to maintain a high quality loan and
investment portfolio. It is not anticipated that the Disposition will affect the
quality of the loan portfolio. In addition, the Company anticipates that the
majority of the investment portfolio will be made up of Treasury and Agency
Securities.
59
<PAGE> 63
ACCOUNTING STANDARDS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan", ("FAS 114")," issued in May 1993, and
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures", ("FAS 118")",
an amendment of FAS 114, issued in October 1994, address the accounting by
creditors for impairment of certain loans. FAS 114 requires that impaired loans
be measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. FAS 118 amends the disclosure requirements of FAS 114
to require information about the recorded investment in certain impaired loans
and amends the income recognition criteria in FAS 114. FAS 114 and FAS 118 are
effective for fiscal years beginning after December 15, 1994. Based upon a
preliminary review of the present loan portfolio, the Company does not believe
that the adoption of FAS 114 and FAS 118 will have a significant impact on the
financial condition or results of operations of the Company.
Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments", ("FAS
119"), issued in October 1994, requires new disclosures about derivative
financial instruments and amends certain existing disclosure requirements. FAS
119 is effective for fiscal years ending after December 15, 1994. Since FAS 119
imposes only a disclosure requirement, its adoption will not have any effect on
its present financial condition or its results of operations.
60
<PAGE> 64
RECENT DEVELOPMENTS
The summary financial data set forth below is derived from the audited
financial statements of the Company for the fiscal year ended December 31, 1993,
and the unaudited financial statements of the Company for the three-month
periods ended December 31, 1994 and 1993, and for the twelve-month period ended
December 31, 1994. Actual results for the year ended December 31, 1994, are
subject to the completion by the Company of its financial statements and
accompanying footnotes and the audit of such financial information by its
independent accountants. See "Pro Forma Condensed Financial Statements",
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
1994 1993 1994 1993
------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED CONDENSED STATEMENT OF INCOME:
Net Interest Income....................................... $ 26 $ 28 $ 108 $ 116
Provision for Credit Losses............................... 1 1 2 4
------ ------ ------ ------
Net Interest Income After Provision for Credit Losses..... 25 27 106 112
Other Operating Income.................................... 41 76 270 276
Other Operating Expenses.................................. 95 88 342 315
------ ------ ------ ------
Income (Loss) Before Taxes................................ (29) 15 34 73
------ ------ ------ ------
Net Income (Loss)......................................... $ (16) $ 9 $ 21 $ 42
====== ====== ====== ======
PER COMMON SHARE:
Fully diluted............................................. $(1.65) $ 0.92 $ 2.09 $ 4.25
====== ====== ====== ======
Cash Dividends Declared................................... $ 0.50 $ 0.47 $ 2.00 $ 1.88
CONSOLIDATED CONDENSED STATEMENT OF CONDITION:
Total Assets.............................................. $3,223 $3,186
Total Deposits............................................ 2,440 2,487
Long-Term Debt............................................ 61 65
Total Stockholders' Equity................................ 223 229
EARNINGS RATIOS:
Return on Average Total Assets............................ (1.60)% 0.96% 0.53% 1.11%
Return on Average Total Stockholders' Equity.............. (27.3)% 17.1% 9.2% 20.5%
CAPITAL RATIOS:
As a Percentage of Risk Adjusted Period End Total Assets:
Tier 1 Capital.......................................... 13.52% 14.08%
Total Capital........................................... 14.79% 15.47%
Tier 1 Leverage........................................... 5.68% 5.60%
</TABLE>
Results of Operations
On January 19, 1995, the Company reported a net loss of $15.5 million for
the fourth quarter of 1994, compared to net income of $9.1 million for the
fourth quarter of 1993. On a fully diluted per share basis, the net loss for the
fourth quarter of 1994 was $1.65, compared to net income of $0.92 for the fourth
quarter of 1993. The results of the fourth quarter of 1994 include $50.2 million
($27.9 million after taxes) of charges associated with the pending Disposition.
Excluding the aforementioned charges, net income for the fourth quarter of 1994
would have been $12.4, million or $1.22 on a fully diluted per share basis.
61
<PAGE> 65
For the year 1994, net income was $21.0 million, a decrease of 50.4% from
$42.3 million of net income for the year 1993. Fully diluted net income per
share for 1994 was $2.09, compared with $4.25 for in 1993, a decrease of 50.8%.
Excluding the charges associated with the Disposition, net income for 1994 would
have been $48.9 million, or $4.83 on a fully diluted per share basis.
Fiduciary and Other Fees
Fiduciary and other fees increased 7.5% to $75.6 million in the fourth
quarter of 1994 from $70.3 million in the fourth quarter of 1993. Fiduciary and
other fees related to the Processing Business increased 7.2% to $25.8 million in
the fourth quarter of 1994 from $24.0 million in the fourth quarter of 1993.
Fiduciary and other fees related to the Core Businesses increased 7.6% to $49.8
million in the fourth quarter of 1994 from $46.3 million in the fourth quarter
of 1993.
For the year 1994, fiduciary and other fees were $295.6 million, an
increase of 11.9% over fiduciary and other fees of $264.1 million in 1993.
Fiduciary and other fees related to the Processing Business increased 10.5% to
$102.7 in 1994 from $93.0 million in 1993. Fiduciary and other fees related to
the Core Businesses increased 12.7% to $192.9 million in 1994 from $171.1
million in 1993. Excluding fiduciary and other fees attributable to Pacific
Northwest, acquired on July 7, 1993, fiduciary and other fees related to the
Core Businesses would have increased 10.5% for the year 1994.
Assets Under Management
Total assets under management increased 2.4% to $33.0 billion at December
31, 1994, from $32.2 billion at December 31, 1993. Such assets include $1.9
billion of funds under management for clients of the Processing Business. Assets
held in custody for personal clients increased 4.7% to $8.2 billion at December
31, 1994, from $7.9 billion at December 31, 1993. Corporate trust assets under
trusteeship and agency relationships, including assets administered by the
Company's bond immobilization business, increased 4.8% to $159.6 billion at
December 31, 1994, from $152.2 billion at December 31, 1993. Total assets under
administration for the Processing Business increased 11.2% to $223.4 billion at
December 31, 1994, from $200.9 billion at December 31, 1993.
Securities Gains (Losses) and Net Interest Income
Under the Merger Agreement, the assets of the Chase Acquired Business
(which includes the Processing Business) will include readily available funds
equal to the liabilities (including deposit liabilities) associated with the
Chase Acquired Business. The Chase Acquired Business deposits provided a
long-term source of funds to the Company which financed a portion of the
Company's long- and medium-term interest earning assets. In anticipation of
consummating the Disposition and to substantially effect a rebalancing of the
Company's overall asset and liability structure, in the fourth quarter of 1994,
the Company sold approximately $800 million of Treasury and Agency Securities.
The proceeds from such sales were invested in short-term investment securities
and used to reduce short-term borrowings. Net losses from the sale of securities
in the fourth quarter of 1994 totaled $44.2 million ($23.3 million after taxes),
compared to a net gain of $3.0 million from the sale of securities in the fourth
quarter of 1993. For the year 1994, net losses from the sale of securities
totalled $42.1 million, compared to a net gain from the sale of securities of
$3.0 million for the year 1993.
Net interest income, on a taxable equivalent basis, was $26.8 million in
the fourth quarter of 1994, a decrease of 7.7% from $29.1 million in the fourth
quarter of 1993. Net interest income in 1994, on a taxable equivalent basis, was
$112.8 million, a decrease of 7.6% from $122.1 million in 1993. The principal
reason for the decline of net interest income during the fourth quarter of 1994
and the year 1994 was the reduction ($283 million for the fourth quarter and
$187 million for the year) in the average of net non-interest bearing deposit
balances.
62
<PAGE> 66
The average net non-interest bearing deposit balances of the Processing
Business declined 28.8% to $602 million in the fourth quarter of 1994, compared
to $845 million in the fourth quarter of 1993. The average volume of net
non-interest bearing deposit balances of the Processing Business in 1994 were
$776 million, a 21.1% reduction from $983 million in 1993. Replacing such net
non-interest bearing deposit balances with short-term borrowings caused the
Company's net interest income to decline by $3.2 million ($1.7 million after
taxes or $0.18 per fully diluted share) in the fourth quarter of 1994 and $9.0
million ($4.8 million after taxes or $0.47 per fully diluted share) in 1994.
The net yield on interest-earning assets was 3.43% in the fourth quarter of
1994 and 3.49% in the year 1994, compared to 3.86% and 3.95% in the
corresponding 1993 periods. The decline in the net yield reflects the lower
level of net non-interest bearing deposit balances and the impact of the
reduction in the investment securities portfolio's maturity structure.
Other Income
Other income was $9.1 million for the fourth quarter of 1994, compared to
$2.4 million for the fourth quarter of 1993, an increase of 282.3%. Other income
was $16.7 million in 1994, compared to and $8.9 million in 1993, an increase of
89.0%. This increase was attributable primarily to the sale by the Company of
its partnership interest in Financial Technologies International L.P.; a pre-tax
gain of $6.4 million was recorded in the fourth quarter of 1994 ($3.4 million
after taxes or $0.36 per fully diluted share for the fourth quarter and $0.33
per fully diluted share for the year 1994) in connection with this transaction.
Total Revenues
Total revenues (defined as fiduciary and other fees and net interest income
after provision for credit losses, adjusted for securities losses incurred in
anticipation of the Disposition) were $109.9 million for the fourth quarter of
1994, compared with $102.9 million for the fourth quarter of 1993. Total
revenues were $420.5 million for the year 1994, compared with $388.2 million for
the year 1993. Core Businesses total revenues were $73.5 million for the fourth
quarter of 1994, an increase of 7.6% over $68.3 million of total revenues in the
fourth quarter of 1993. Core Businesses total revenues for the year 1994 were
$270.2 million, an increase of 14.1% over 1993 Core Businesses total revenues of
$236.8 million. Total revenues attributable to the Processing Business were
$36.4 million for the fourth quarter of 1994, compared with $34.6 million for
the fourth quarter of 1993. Total revenues attributable to the Processing
Business in 1994 were $150.3 million compared with $151.4 million in 1993.
Operating Expenses
Non-interest operating expenses were $94.3 million in the fourth quarter of
1994, 7.5% higher than the $87.7 million in the fourth quarter of 1993.
Non-interest operating expenses were $341.9 million in the year 1994, an
increase of 8.4% from $315.5 million in the year 1993. The Company incurred $6.0
million ($4.6 million after-taxes) in professional fees and other related
expenses in the fourth quarter of 1994 in connection with the proposed
Disposition. Salaries and employee benefit expenses, including sales incentives
and commissions, increased $4.3 million, or 8.6%, in the fourth quarter of 1994,
and $18.3 million, or 9.7%, in the year 1994, reflecting increases in the size
of the asset management and mutual funds services businesses' professional
staffs and related employee benefit expense. In addition, the expense accrued
for the Company's stock-based incentive award plans increased by approximately
$500,000 after taxes, or $0.05 per share, in the fourth quarter of 1994 as a
result of the higher price of Company Common Stock in the fourth quarter of 1994
following the Company's announcement of the Disposition. For the fourth quarter
of 1994, the ratio of total operating expenses to taxable equivalent total
revenues, as deferred ("efficiency ratio"), was 79.6%, compared to 84.1% for the
fourth quarter of 1993. For the year 1994, the comparable efficiency ratio was
79.0%, versus 80.1% for the year 1993. The calculation of the 1994 efficiency
ratios excludes the impact of the pending Disposition on operating income and
operating expenses.
63
<PAGE> 67
Core Businesses operating expenses were $51.7 million during the fourth
quarter of 1994, compared with $49.8 million during the comparable fourth
quarter of 1993. The operating expenses attributable to the Processing Business
were $27.8 million for the fourth quarter of 1994, compared with $32.3 million
for the fourth quarter of 1993. Corporate overhead and other unallocated
expenses were $14.9 million and $5.6 million for the fourth quarters of 1994 and
1993, respectively.
Core Businesses operating expenses were $194.1 million during 1994,
compared with $173.4 million during 1993. The operating expenses attributable to
the Processing Business were $113.6 million for 1994, compared with $110.1
million during 1993. Corporate overhead and other unallocated expenses were
$34.2 million and $32.0 million for 1994 and 1993, respectively.
Income Tax Expense
As a result of the pre-tax loss of $28.6 million in the fourth quarter of
1994, the Company recorded a tax benefit of $13.0 million (or 45.6% effective
tax rate), compared to a tax provision of $6.0 million (or 39.8% effective tax
rate) for the fourth quarter of 1993. The effective tax rate was 39.0% for the
year 1994, compared to 41.8% for the year 1993. The decline in the effective tax
rate from 1993 to 1994 was due to lower state and local income taxes.
Asset Quality and Provision For Credit Losses
Average loans increased $223 million, or 18.9%, to $1.4 billion in the
fourth quarter of 1994, from $1.2 billion in the fourth quarter of 1993.
Residential real estate mortgages accounted for more than 70% of the increase in
the loan portfolio. Average loans increased $212.2 million, or 19.4%, to $1.3
billion in 1994, from $1.1 billion in 1993.
The provision for credit losses was $500,000 in the fourth quarters of both
1994 and 1993. For the year, the provision for credit losses was $2.0 million,
compared to $4.0 million in 1993.
In the fourth quarter of 1994, net loan charge-offs were $228,000, compared
to net loan charge-offs of $1.4 million in the fourth quarter of 1993. As a
percentage of total average loans for the quarter, net loan charge-offs on an
annualized basis were six basis points in the fourth quarter of 1994, compared
to 46 basis points in the fourth quarter of 1993. For the year 1994, net loan
charge-offs were $694,000, compared to $2.3 million in 1993. As a percentage of
total average loans for the year, net loan charge-offs were five basis points
for 1994, compared to 21 basis points for 1993.
The allowance for credit losses at December 31, 1994, was $14.7 million, or
1.12% of total average loans outstanding for the year, compared with an
allowance for credit losses at December 31, 1993, of $13.4 million, or 1.22% of
total average loans outstanding for 1993. The allowance for credit losses as a
percentage of nonperforming loans amounted to 230.72% at December 31, 1994,
compared to 223.03% at December 31, 1993.
Nonperforming assets were $18.7 million for the year 1994, compared to
$17.5 million for the year 1993. As a percentage of period-end total assets,
total nonperforming assets amounted to 58 basis points for the year 1994,
compared to 55 basis points for the year 1993.
Capital
The Company's Tier 1 Capital ratio was 13.52% at December 31, 1994,
compared to 14.08% at December 31, 1993. The Total Capital ratio was 14.79% at
December 31, 1994, compared to 15.47% at December 31, 1993. The Leverage ratio
was 5.68% at December 31, 1994, compared to 5.60% at December 31, 1993.
64
<PAGE> 68
MANAGEMENT
DIRECTORS
Following the Distribution, the Company Board will consist of 20 persons,
each of whom will have been elected for a term expiring at the annual meeting of
the Company's stockholders indicated below, and until his or her successor shall
have been elected and qualified. The following table sets forth information
concerning the individuals who will serve as directors of the Company. These
individuals comprise the current UST Board, other than Donald M. Roberts and
Frederick S. Wonham, current executive officers and directors of UST who will
retire as of, and will not continue to serve as directors following, the
Distribution.
<TABLE>
<CAPTION>
TERM EXPIRES AT
NAME AGE ANNUAL MEETING IN
------------------------------------------------------ --- -----------------
<S> <C> <C>
Eleanor Baum.......................................... 54 1996
Samuel C. Butler...................................... 64 1998
Peter O. Crisp........................................ 62 1997
Daniel P. Davison..................................... 70 1997
Philippe de Montebello................................ 58 1996
Paul W. Douglas....................................... 68 1998
Edwin D. Etherington.................................. 70 1996
Antonia M. Grumbach................................... 51 1997
Frederic C. Hamilton.................................. 67 1997
Peter L. Malkin....................................... 61 1997
Jeffrey S. Maurer..................................... 47 1997
Orson D. Munn......................................... 70 1998
H. Marshall Schwarz................................... 58 1998
Philip L. Smith....................................... 61 1998
John Hoyt Stookey..................................... 65 1996
Frederick B. Taylor................................... 53 1996
Richard F. Tucker..................................... 68 1997
Carroll L. Wainwright, Jr. ........................... 69 1998
Robert N. Wilson...................................... 54 1996
Ruth A. Wooden........................................ 48 1998
</TABLE>
Eleanor Baum became dean of engineering at Cooper Union in 1987. Prior to
that, she was dean at Pratt Institute in Brooklyn and worked as an electrical
engineer in the aerospace industry. Dr. Baum is also a director of Allegheny
Power Systems and Avnet, Inc. She is president-elect of the American Society for
Engineering Education and serves on the Board of Governors of the New York
Academy of Sciences. She is a trustee of the Accreditation Board for Engineering
& Technology, is a commissioner of the Engineering Workforce Commission, and an
advisory board member at Duke University, Rice University and the U.S. Merchant
Marine Academy. She is executive director of the Cooper Union Research
Foundation and a fellow of the Institute of Electrical & Electronic Engineers.
Samuel C. Butler joined the law firm of Cravath, Swaine & Moore in 1956 and
was elected a partner of the firm in 1960. He is also a director of Ashland Oil,
Inc., Millipore Corporation and GEICO Corporation. Mr. Butler is a trustee of
the New York Public Library and of the Culver Educational Foundation.
Peter O. Crisp has been general partner of Venrock Associates since 1969.
He is also a director of Apple Computer, Inc., American Superconductor
Corporation, Evans & Sutherland Computer Corp., Long Island Lighting Company,
Inc., Thermedics Inc., Thermo Electron Corp., Thermo Power Corporation and
ThermoTrex Corp. Mr. Crisp serves as a member of the Board of Managers of
Memorial Sloan-Kettering Cancer
65
<PAGE> 69
Center, Memorial Hospital for Cancer and Allied Diseases and Sloan-Kettering
Institute for Cancer Research. He is a trustee of North Shore University
Hospital and of the Teagle Foundation.
Daniel P. Davison was chairman of the board of Christie, Manson & Woods
International, Inc. from February 1990 to January 1, 1994. He served as
president of UST and USTNY from the spring of 1979 until June 1, 1986, as chief
executive officer from January 1, 1981 through January 1990 and as chairman of
the board from February 1, 1982 until his retirement in February 1990. Prior to
joining UST, he was associated with Morgan Guaranty Trust Company for 23 years,
serving as corporate secretary, general manager of its London office and, in his
final position, as executive vice president in charge of the National Bank
Division. Mr. Davison is also a director of The Atlantic Companies, Burlington
Northern, Inc., Christies International, plc and Prime Property Inc. He is a
trustee and treasurer of the Winston Churchill Foundation of the United States,
Ltd. and of the Florence Gould Foundation. Mr. Davison is also vice chairman and
governor of The Nature Conservancy and trustee of the Waterfowl Foundation.
Philippe de Montebello has been associated with the Metropolitan Museum of
Art since 1963, serving as associate curator for European paintings from 1963 to
1969, vice director for curatorial and educational affairs from 1974 to 1977 and
as director since 1978. In the interim of his duties at the Metropolitan, Mr. de
Montebello served as director of the Museum of Fine Arts in Houston from 1969 to
1974. He is a member of the Advisory Board of the Skowhegan School of Painting
and Sculpture and the Columbia University Advisory Council-Departments of Art
History and Archaeology. Mr. de Montebello is a trustee of the New York
University Institute of Fine Arts and the American Federation of Arts.
Paul W. Douglas retired as chairman of the board and chief executive
officer of The Pittston Company in September 1991. Prior to joining Pittston in
January 1984, he had been associated with Freeport-McMoRan Inc. following the
merger of Freeport Minerals Company and McMoRan Oil and Gas Company in April
1981. Formerly, he was director of the internal finance section of the ECA
Mission to France. Mr. Douglas is also a director of Holmes Protection Group,
Inc., MacMillan Bloedel Limited of Vancouver, B.C., New York Life Insurance
Company, Phelps Dodge Corporation, Philip Morris Companies, Inc. and South
American Gold and Copper Co. He is a member of The Council on Foreign Relations,
Inc. and a trustee of The International Center for the Disabled and of St.
Luke's-Roosevelt Hospital.
Edwin D. Etherington was president and chief executive officer of the
American Stock Exchange from 1962 to 1966 and president of Wesleyan University
from 1966 to 1970. Earlier, after practicing law in Washington, D.C. and New
York City, he was vice president of the New York Stock Exchange and,
subsequently, a general partner of Pershing & Co. Mr. Etherington was president
(1971) and chairman (1972) of the National Center for Voluntary Action and for
two years was chairman of the National Advertising Review Board. He is a
director of Automatic Data Processing, Inc. and a trustee of The Schumann
Foundation. He also serves as honorary chairman of the Lymes' Youth Service
Bureau and of the Hobe Sound Child Care Center.
Antonia M. Grumbach joined the law firm of Patterson, Belknap, Webb & Tyler
in 1971 and became a partner of the firm in 1979. She is currently serving as
managing partner of the firm. She is vice chairman of the board of trustees of
Teachers College-Columbia University, and a trustee of Milton Academy, the CUNY
Graduate Center Foundation, the William T. Grant Foundation and The Henfield
Foundation. Ms. Grumbach also served as an initial member of the Board of
Advisors of the New York University program on philanthropy and the law.
Frederic C. Hamilton serves as chairman of the board, president and chief
executive officer of Hamilton Oil Company, Inc., chairman of the board of BHP
Petroleum, and chairman of the board of Tejas Gas Corporation. He is also a
director of the American Petroleum Institute and a member of the National
Petroleum Council. Mr. Hamilton is chairman of the Denver Art Museum Foundation
and of the Denver Art Museum, and a trustee of the Boys' Club Foundation and the
Boy Scouts of America Denver Area Council.
66
<PAGE> 70
Peter L. Malkin joined the predecessor law firm of Wien, Malkin & Bettex in
1958 and became a partner in the firm in 1962. He is also chairman of W & M
Properties, Inc. and is a general partner in the ownership of several New York
City buildings, including the Empire State Building, the Graybar Building, the
Lincoln Building, 1185 Avenue of the Americas, and One Penn Plaza. Mr. Malkin is
founding chairman of the Grand Central Partnership and of the 34th Street
Partnership, a director of the New York City Chamber of Commerce & Industry, a
member of the New York City Partnership, a member of the Board of Overseers of
Harvard College and a director and member of the Executive Committee of Lincoln
Center for the Performing Arts.
Jeffrey S. Maurer joined USTNY in 1970 and was made manager of the Asset
Management and Private Banking Group in 1988. He was elected senior vice
president in November 1980, executive vice president in May 1986 and president
effective February 1990, and was designated chief operating officer in December
of 1994. Mr. Maurer is a trustee of Alfred University, a director and treasurer
of The Children's Health Fund, a director of The Hebrew Home for the Aged, a
member of the Advisory Board of The Salvation Army of Greater New York and
chairman of the Commerce and Industry Division of the Greater New York Israel
Bond Campaign.
Orson D. Munn was senior vice president and chief investment officer of
Madison Fund, Inc. from May 1981 through February 1983 and was president of
Orson Munn, Inc. from February 1983 until the organization of Munn, Bernhard &
Associates, Inc. in November 1990. Previously, he was president of Piedmont
Advisory Corporation and, upon its merger in 1980 with Lexington Management
Corporation, performed the duties of vice chairman and chief investment officer.
Earlier, Mr. Munn was associated with Wood Walker & Co. for 20 years, serving as
chief executive officer of the company from 1972 to 1974. Mr. Munn is a trustee
of the Waterfowl Research Foundation and is a former member of the Financial
Advisory Committee of the Garden Club of America, a former trustee of the
Village of Southampton and a former director of numerous charities.
H. Marshall Schwarz joined USTNY in 1967 after a seven-year association
with Morgan Stanley & Co. In 1972, he was elected a senior vice president and
head of the Banking Division. He was elected executive vice president and chief
operating officer of USTNY's Bank Group in 1977 and chief operating officer of
the Asset Management Group in 1979. Mr. Schwarz served as president of UST and
USTNY from June 1986 through January 1990 and became chairman and chief
executive officer effective February 1, 1990. He is also a director of Atlantic
Mutual Companies and Bowne & Co., Inc. Mr. Schwarz is chairman of the board of
the American Red Cross in Greater New York and a director of the United Way of
New York City. He is a trustee of Teachers College-Columbia University, Milton
Academy, the Camille and Henry Dreyfus Foundation, Inc. and The Boys' Club of
New York.
Philip L. Smith has been chairman of the board and director of the Golden
Cat Corporation since November 1990. He was chairman of the board, president and
chief executive officer of The Pillsbury Company from August 1988 through
January 1989. Formerly, he had been associated with General Foods Corporation
for over 20 years, serving in his final position as chairman of General Foods
and director of Philip Morris Companies, Inc. Mr. Smith is also a director of
Whirlpool Corporation and Ecolab Corporation.
John Hoyt Stookey served as president of Quantum Chemical from 1975 to 1993
when Quantum was acquired by Hanson Industries, Inc. He continues as chairman of
the board of Quantum, a position he has held since 1986. As Chairman of Quantum,
Mr. Stookey served from 1989 to 1993 as an executive officer of Petrolane
Incorporated, Petrolane Finance Corp. and QJV Corp., affiliates of Quantum,
which companies were reorganized on July 15, 1993 under the U.S. Bankruptcy
Code. Prior to joining Quantum, Mr. Stookey was president of Wallace Clark
Incorporated from 1969 to 1975 and served as the U.S. Representative to both
private and public banks in Mexico. He is also a director of Cypress AMAX
Minerals Co., ACX Technologies and Chesapeake Corporation. Mr. Stookey is the
founder and president of The Berkshire Choral Institute and
67
<PAGE> 71
of Landmark Volunteers, and trustee of the Glimmerglass Opera, Berkshire School,
The Clark Foundation and The Robert Sterling Clark Foundation.
Frederick B. Taylor joined USTNY in 1966. In 1980, he was elected a senior
vice president and, in 1986, he was elected an executive vice president of UST
and chairman, Investment Policy of USTNY. Mr. Taylor was elected vice chairman
and chief investment officer effective February 1990. He is a member of the New
York Society of Security Analysts and the Association for Investment Management
and Research. Mr. Taylor serves on the board of counselors of White Plains
Hospital and on the senior advisory board of the New York Chapter of the
Arthritis Foundation.
Richard F. Tucker joined Mobil Corporation in 1961 and retired as vice
chairman in May 1991. He was a director of Mobil from 1971, and president and
chief operating officer of Mobil Oil Corporation from 1986 until his retirement.
Mr. Tucker is also a director of The Perkin-Elmer Corporation. He is trustee
emeritus of Cornell University and a life member of the Board of Overseers of
Cornell Medical College. He is also a trustee of the Aldrich Museum of
Contemporary Art, The Teagle Foundation and the Norwalk Hospital. Mr. Tucker is
a member of the National Academy of Engineering, The Council on Foreign
Relations, Inc. and the Woods Hole Oceanographic Institution.
Carroll L. Wainwright, Jr. joined the law firm of Milbank, Tweed, Hadley &
McCloy in 1952. After serving as assistant counsel to the Governor of New York
from 1959 through 1960, he returned to the firm, becoming a partner in 1963, a
senior partner in 1986 and a consulting partner in 1991. Mr. Wainwright is a
trustee of the American Museum of Natural History, trustee and vice chairman of
The Cooper Union for the Advancement of Science and Art and trustee and former
president of The Boys' Club of New York. He is also an adjunct professor at
Washington and Lee University Law School, a trustee of the Edward John Noble
Foundation, and member of the Distribution Committee of The New York Community
Trust.
Robert N. Wilson joined Johnson & Johnson in 1964. He was appointed to the
Executive Committee in 1983 and was elected to the board of directors in 1986.
Mr. Wilson has been vice chairman of the board of directors of Johnson & Johnson
since 1989. He is a member of the Board of Directors of the Pharmaceutical
Research and Manufacturers Association, of the Alliance for Aging Research and
The Georgetown College Foundation, Inc. He also serves as a trustee of the
Museum of American Folk Art and is a member of the Trilateral Commission. He is
a director of The James Breck Foundation in London, England.
Ruth A. Wooden became president and chief executive officer of The
Advertising Council in August 1987. Prior to joining The Advertising Council,
she was employed with NW Ayer, Inc. for eleven years. Ms. Wooden serves as a
trustee of The Edna McConnell Clark Foundation and of St. Luke's Roosevelt
Hospital Center. She is vice chair of CARE, USA and an advisor to the Columbia
Health Sciences Advisory Council and the Columbia University School of Public
Health Advisory Council.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company Board and the Board of Trustees of New Trustco (the "Board of
Trustees") (together, "the Boards") each will have, among others, a standing
Executive Committee, a standing Audit Committee (in the case of New Trustco,
known as the Examining & Audit Committee) and a standing Compensation and
Benefits Committee. The Executive Committees of the Company Board and the Board
of Trustees (together, the "Executive Committee") will be composed of Mr.
Schwarz (the Committee Chairman) and seven other members, all of whom will be
appointed annually. The Executive Committee will have the power to act for the
Boards when the Boards are not in session and will also serve as a nominating
committee. The Executive Committee will consider nominees for director and
trustee recommended by shareholders who submit the names of recommended nominees
with supporting reasons for such recommendations in writing to the Secretary of
the Company or New Trustco, as the case may be. In addition to Mr. Schwarz, the
Executive Committee will initially consist of Messrs. Butler, Davison, Douglas,
Etherington, Maurer, Stookey and Wainwright.
68
<PAGE> 72
The Audit Committee of the Company Board and the Examining and Audit
Committee of the Board of Trustees (together, the "Audit Committee") will
provide the Boards with an independent review of the Company's and New Trustco's
accounting policies, the adequacy of financial controls and the reliability of
financial information reported to the public. The Audit Committee will also
conduct examinations of the affairs of the Company and New Trustco as required
by law or as directed by the Boards, will supervise the activities of the
internal auditor and will review the services provided by the independent
auditors. The Audit Committee members, who will be appointed annually, will
initially consist of Messrs. Douglas, de Montebello, Smith, Stookey and Wilson.
The Compensation and Benefits Committee of the Company Board and the Board
of Trustees (together, the "Compensation Committee") will determine compensation
and benefits for officer-trustees, will review salary and benefits changes for
other senior officers and will review employee benefit plans under ERISA and
other employee benefit plans. The Compensation Committee members, who will be
appointed annually, will initially consist of Messrs. Smith, Hamilton, Tucker
and Wilson and Ms. Wooden.
COMPENSATION OF DIRECTORS
Each director of the Company who is not also an officer of the Company or
of New Trustco will receive an annual retainer fee of $15,000 and an attendance
fee of $1,000 for each meeting attended of the Company Board, of the Board of
Trustees, and of the committees of the respective Boards, other than those
mentioned in the following paragraph, in which cases no attendance fee is
applicable. If the Boards or the Executive Committee of the Company and New
Trustco meet on the same day, only one fee will be paid to a director-trustee
for attendance at both meetings. Under the Stock Plan for Non-Officer Directors,
each director of the Company who is not also an officer of the Company or of New
Trustco will receive 100 Shares of Company Common Stock each February as an
additional part of his or her annual retainer fee.
The Chairman of the Audit Committee will receive an annual retainer of
$12,500 and each member of such committee will receive an annual retainer of
$10,000. The Chairman of the Compensation Committee will receive an annual
retainer of $10,000 and each member of such committee will receive an annual
retainer of $7,000. All directors and trustees will be reimbursed for travel and
other out-of-pocket expenses incurred by them in attending board or committee
meetings.
Directors who are not also officers of the Company or of New Trustco may
defer cash compensation (including meeting attendance fees) for services
rendered as directors of the Company or as trustees of New Trustco or as members
of any Company Board committee. Under the Board Members' Deferred Compensation
Plan certain provisions applicable to amounts so deferred are identical to
provisions applicable to deferred performance share unit awards under the 1989
Stock Compensation Plan of U.S. Trust Corporation. These include provisions
relating to (i) conversion of the deferred amounts into phantom share units or
allocation of such amounts to interest-bearing accounts, (ii) crediting of
dividend equivalents or earnings to such deferred amounts, and (iii) the form
and time of distributions with respect to such deferred amounts. See "Executive
Compensation Plans in Effect after the Distribution -- Other Features of Stock
Plan and Predecessor Performance Plans -- Performance Share Units."
Directors who are not also officers of the Company or of New Trustco who
retire from the Company Board at age 72 with 10 or more years of service on any
of the Boards of UST, USTNY (prior to the Closing Date), the Company or New
Trustco will be paid an annual retirement benefit for life equal to the annual
retainer received as a member of such Boards in his or her last full year of
membership on such Boards. Directors with less than 10 years of service who
retire at age 72 and directors with 15 or more years of service who retire prior
to age 72 will be paid the same annual benefit for the lesser of the number of
years he or she served on such Boards or his or her lifetime.
It is anticipated that the Company will adopt a new stock option plan for
non-employee directors to replace the present U.S. Trust Corporation Stock
Option Plan for Non-Employee Directors (the "UST
69
<PAGE> 73
Directors' Option Plan") which will be terminated. The terms and conditions on
which options will be granted to directors under the new stock option plan have
not yet been decided.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who will serve as executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
H. Marshall Schwarz....................... 58 Chairman and Chief Executive Officer
Jeffrey S. Maurer......................... 47 President and Chief Operating Officer
Frederick B. Taylor....................... 53 Vice Chairman and Chief Investment Officer
John M. Deignan........................... 51 Executive Vice President
John C. Hover, II......................... 51 Executive Vice President
Paul K. Napoli............................ 49 Executive Vice President
Kenneth G. Walsh.......................... 46 Executive Vice President
John L. Kirby............................. 47 Senior Vice President and Treasurer
</TABLE>
The principal occupations and positions for the past five years of each of
the persons named above (other than Messrs. Schwarz, Maurer and Taylor, whose
information is set forth above) are as follows:
John M. Deignan joined USTNY in 1987 and is an Executive Vice President in
charge of the Institutional Asset Services and Securities Services & Trust
Operations Divisions. Prior to joining USTNY in August of 1987, Mr. Deignan was
associated with Dean Witter Reynolds for over 18 years serving in various senior
management roles including Deputy Director of National Operations and Director
of Capital Markets Operations. He received his B.A. degree from St. Bonaventure
University. Mr. Deignan represents USTNY as its senior officer on the New York
Clearing House Steering Committee, serves on the Board of Directors of U.S.
Trust Company Limited and Participants Trust Company, is a member of the U.S.
Trust Management, Emergency Operations, Risk Policy, and Advisory Committees.
John C. Hover, II joined USTNY in 1976 and currently is manager of the
Personal Asset Management and Private Banking Division. He is also a member of
USTNY's Operating, Credit and Asset and Liability Management Committees. He
serves as Chairman of USTC International Corp. Prior to joining USTNY, Mr. Hover
was with Chemical Bank for nine years. He received his B.A. from the University
of Pennsylvania in 1965 and his M.B.A. from The Wharton School in 1967.
Paul K. Napoli joined USTNY in 1983 in the Personal Investment Division. In
1989 he became head of the Asset Management Division and in December 1993 he
headed up the Institutional and Mutual Fund Asset Management Division. At
present, Mr. Napoli is in charge of the Personal Investment Division in New
York. Mr. Napoli also serves on USTNY's Operating Committee and has
responsibility for four of USTNY's affiliates: UST of Connecticut, UST of New
Jersey, Campbell, Cowperthwait & Company and UST Securities Corp. He also serves
on the Special Fiduciary and Broker Relations Committee. Prior to joining USTNY,
Mr. Napoli was a Vice President at The Bank of New York for 11 years. He
received his B.A. from Boston College in 1967 and his M.B.A. from Columbia
University in 1969. He holds the designations of Chartered Financial Analyst and
Certified Trust and Financial Advisor. Mr. Napoli is a member of the New York
Society of Security Analysts, the Association for Investment Management and
Research, and the Rockefeller University Trust and Estate Council.
Kenneth G. Walsh joined USTNY in 1976 and currently is Division Manager of
the Corporate Trust and Agency Division. He is also a member of USTNY's
Operating Committee. Prior to obtaining his current position, Mr. Walsh served
as a Senior Vice President and General Counsel of USTNY. Prior to joining USTNY
in 1976, Mr. Walsh was an associate at the firm of Remsen, Millham & Curran. Mr.
Walsh is a member of the New York State and American Bar Associations and is
admitted to the bars of the U.S. District Court for the Southern District of New
York and the Supreme Court of the United States. He also
70
<PAGE> 74
serves on the New York Corporate Fiduciaries Association. Mr. Walsh is also on
the board of U.S. Trust of Connecticut. He received his B.S. from St. John's
University in 1970, his J.D. from Brooklyn Law School in 1973, his M.B.A. from
St. John's University in 1976, his L.L.M. from New York University in 1981 and
attended the Advanced Management Program at the Harvard Business School in 1989.
John L. Kirby joined USTNY in 1974. He currently heads the Audit Division
and the Risk Policy Office and was head of the Treasury Services Division from
1989 through 1992. He received his B.A. from Middlebury College, Vermont, in
1969 and his M.B.A. from the Amos Tuck School at Dartmouth College in 1974.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by UST during 1994 to the Company's Chief Executive Officer and the four
other most highly compensated persons who will be executive officers of the
Company, based on salary and bonus earned during 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------------------
ANNUAL
COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------- ---------
OTHER RESTRICTED STOCK LONG-TERM
ANNUAL STOCK OPTION INCENTIVE ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS AWARDS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) (#) (#) ($) ($)
- ------------------------------------- ---- -------- -------- ------------ ---------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. Marshall Schwarz.................. 1994 547,308 257,635 0 0 15,000 465,099 33,177
Chairman, CEO 1993 517,308 304,135 0 0 10,000 545,015 89,641
1992 485,192 305,740 0 0 0 221,688 28,451
Jeffrey S. Maurer.................... 1994 401,539 169,923 0 0 10,000 316,316 23,913
President, COO 1993 381,538 205,923 0 0 6,000 370,669 61,175
1992 359,423 212,029 0 0 15,000 150,617 20,737
Frederick B. Taylor.................. 1994 371,539 151,423 0 3,500 9,000 262,554 21,428
Vice Chairman, 1993 351,539 187,423 0 0 5,000 307,670 48,860
Chief Investment 1992 329,423 183,529 0 0 12,000 126,057 18,527
Officer
John M. Deignan...................... 1994 287,846 110,608 0 0 3,000 187,538 14,392
Executive Vice 1993 274,808 126,260 0 0 3,000 202,184 12,888
President 1992 259,808 112,010 0 0 6,000 84,112 12,040
Paul K. Napoli....................... 1994 272,846 111,358 0 0 3,000 173,286 17,046
Executive Vice 1993 257,769 136,230 0 0 3,000 188,996 13,740
President.......................... 1992 240,808 127,960 0 0 7,500 78,243 12,990
</TABLE>
The following table lists for each of the named executive officers (the
"Named Executive Officers") the payments that comprise the "All Other
Compensation" amounts found in the Summary Compensation Table.
71
<PAGE> 75
ALL OTHER COMPENSATION
<TABLE>
<CAPTION>
EMPLOYER SUPPLEMENTAL EARNINGS ON
CONTRIBUTION ESOP DEFERRED
TO ESOP(1) AMOUNT(2) AWARDS(3) TOTAL
NAME YEAR ($) ($) ($) ($)
- ----------------------------------- ----- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
H. Marshall Schwarz................ 1994 7,500 19,865 5,812 33,177
Jeffrey S. Maurer.................. 1994 7,500 12,577 3,836 23,913
Frederick B. Taylor................ 1994 7,500 11,077 2,851 21,428
John M. Deignan.................... 1994 7,500 6,892 0 14,392
Paul K. Napoli..................... 1994 7,500 6,142 3,404 17,046
</TABLE>
- ---------------
(1) Represents the amount of the employer contribution made to the ESOP portion
of the 401(k) Plan and ESOP on behalf of each of the Named Executive
Officers for the year indicated.
(2) Represents the amount of the employer contribution, otherwise required under
the ESOP portion of the 401(k) Plan and ESOP, that could not be made to the
Plan on behalf of the Named Executive Officers for 1994 due to certain
limitations imposed under the Code (the "Code Limitations"). This amount is
credited to the officer's account under UST's Executive Deferred
Compensation Plan, and payment is deferred until termination of the
officer's employment. See "Executive Compensation Plans in Effect After the
Distribution -- Executive Deferred Compensation Plan" below for a
description of the Executive Deferred Compensation Plan.
(3) Represents that portion of the interest accrued on certain previously
deferred incentive plan cash awards which is "above market" interest as
defined in the rules of the Securities Exchange Commission (the
"Commission").
Stock Options
The following table sets forth certain information concerning options
granted during 1994 to the Named Executive Officers, including potential gains
that these officers would realize under two stock price growth-rate assumptions
compounded annually. Under the 5% growth-rate assumption, the indicated values
would be realized if the stock price reached $83.48 per share at the end of the
option term (10 years from grant). Correspondingly, under the 10% growth-rate
assumption, the indicated values would be realized if the stock price reached
$132.93 per share.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
--------------------------------------------------------- REALIZABLE VALUE OF
NUMBER OF ASSUMED ANNUAL
SECURITIES % OF TOTAL EXERCISE PRICE RATES OF STOCK
UNDERLYING OPTIONS PER SHARE PRICE APPRECIATION
OPTIONS GRANTED TO (MARKET PRICE FOR OPTION TERM(1)
GRANTED(2) (% EMPLOYEES IN AT DATE OF EXPIRATION -------------------
NAME OF SHARES) FISCAL YEAR GRANT)($) DATE 5%($) 10%($)
- -------------------------- -------------- ------------ -------------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
H. Marshall Schwarz....... 15,000 7.7 51.25 01/25/04 483,450 1,225,200
Jeffrey S. Maurer......... 10,000 5.1 51.25 01/25/04 322,300 816,800
Fredrick B. Taylor........ 9,000 4.6 51.25 01/25/04 290,070 735,120
John M. Deignan........... 3,000 1.5 51.25 01/25/04 96,690 245,040
Paul K. Napoli............ 3,000 1.5 51.25 01/25/04 96,690 245,040
</TABLE>
- ---------------
(1) Annual growth-rate assumptions are prescribed by rules of the Commission and
do not reflect actual or projected price appreciation of UST Common Stock.
The actual average annual price appreciation of UST Common Stock over the
last ten years was 13.71%.
72
<PAGE> 76
(2) Options become exercisable in four equal, cumulative installments in each of
the first through fourth anniversary dates of the date of grant (January 25,
1994).
The following table discloses the aggregated stock option exercises for
each of the Named Executive Officers in the last fiscal year. It also shows the
number of vested and unvested unexercised options and the value of vested and
unvested unexercised in-the-money options.
AGGREGATED OPTION EXERCISES IN 1994 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT YEAR-END(#) YEAR-END($)(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
H. Marshall Schwarz......... 5,500 176,875.00 58,500/35,000 1,585,050/594,025
Jeffrey S. Maurer........... 2,300 81,075.00 39,450/31,250 1,055,692/556,352
Frederick B. Taylor......... 2,550 89,887.50 30,950/25,500 814,850/432,637
John M. Deignan............. 1,000 24,000.00 9,250/9,750 204,715/143,145
Paul K. Napoli.............. 1,500 52,875.00 10,500/10,500 235,402/156,457
</TABLE>
- ---------------
(1) Aggregate market value on the date(s) of exercise less aggregate exercise
price.
(2) Total value of unexercised options is based on the difference between
aggregate market value of UST Common Stock at $63.50 per share, the closing
price on December 30, 1994, and aggregate exercise price.
Performance Share Units
The following table sets forth certain information concerning long-term
incentive awards granted during 1994 to the Named Executive Officers. The awards
are granted in the form of performance share units under UST's 1989 Stock
Compensation Plan. See "Executive Compensation Plans in Effect After the
Distribution -- Other Features of Stock Plan and Predecessor Performance Plans"
below for a further description of these awards.
LONG-TERM INCENTIVE AWARDS GRANTED IN 1994
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS OF PERFORMANCE SHARE
NUMBER OF PERFORMANCE UNITS
PERFORMANCE PERIOD UNTIL ------------------------------------------------
NAME SHARE UNITS (#) PAYOUT THRESHOLD(#)(1) TARGET(#)(2) MAXIMUM(#)(2)
- ------------------------ --------------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
H. Marshall Schwarz..... 6,042 3 years 3,021 6,042 6,042
Jeffrey S. Maurer....... 4,076 3 years 2,038 4,076 4,076
Frederick B. Taylor..... 3,420 3 years 1,710 3,420 3,420
John M. Deignan......... 2,394 3 years 1,197 2,394 2,394
Paul K. Napoli.......... 2,257 3 years 1,129 2,257 2,257
</TABLE>
- ---------------
(1) Assumes minimum number of performance share units earned in each performance
goal for 1994-96 performance cycle.
(2) Assumes all specified performance targets are reached.
The UST Board and UST's Compensation Committee have approved a
recommendation by UST's management that, if the Merger is consummated, the
performance goals established for the 1993-95 and the 1994-96 performance cycles
will be deemed to have been met in full, and that all performance share units
awarded to each UST officer for each of these performance cycles will be deemed
to be fully earned and payable to the officer if he or she remains in employment
with the Company, New Trustco or their affiliates
73
<PAGE> 77
until the end of such performance cycle or if he or she leaves such employment
before the end of such performance cycle as a result of retirement or
termination due to staff reductions associated with the Distribution and the
Merger.
BENEFICIAL OWNERSHIP
All of the outstanding shares of Company Common Stock are, and will be
prior to the Distribution, held beneficially and of record by UST. Set forth in
the table below is information as of December 31, 1994, with respect to the
number of shares of UST Common Stock beneficially owned by (i) each person or
entity known by the Company to own more than five percent of the outstanding UST
Common Stock, (ii) each person who will be a director of the Company at the Time
of Distribution, (iii) each of the Named Executive Officers of the Company and
(iv) all persons who will be directors and executive officers of the Company at
the Time of Distribution as a group. Because the Distribution will be made on
the basis of one share of Company Common Stock for each share of then
outstanding UST Common Stock, the percentage ownership of each person or entity
named below immediately following the Distribution will be the same as the
percentage ownership of such person or entity immediately prior to the
Distribution. A person or entity is considered to "beneficially own" any shares
(i) over which such person or entity exercises sole or shared voting or
investment power or (ii) which such person or entity has the right to acquire at
any time within 60 days (e.g., through the exercise of employee stock options).
Unless otherwise indicated, each person or entity has sole voting and investment
power with respect to the shares set forth opposite such person's or entity's
name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- --------------------------------------- --------------------------------------- --------
<S> <C> <C>
401(k) Plan and ESOP of United States 1,335,133 shares (in a fiduciary 14.13
Trust Company of New York and capacity)(1)
Affiliated Companies
114 West 47th Street
New York, New York 10036
GeoCapital Corporation 618,750 shares (with sole dispositive 6.55
767 Fifth Avenue power)(2)
New York, New York, 10158
United States Trust Company of New York 354,139 shares (in fiduciary and agency 3.75
and Affiliated Companies capacities)(3)
114 West 47th Street
New York, New York 10036
Eleanor Baum 300(4)(5)
Samuel C. Butler 7,730(4)(5)(6)
Peter O. Crisp 700(4)(5)
Daniel P. Davison 48,095(7)
Philippe de Montebello 800(4)
Paul W. Douglas 1,837(4)(5)
Edwin D. Etherington 8,150
Antonia M. Grumbach 1,300(4)
Frederic C. Hamilton 30,825(4)
Peter L. Malkin 1,200(4)
Jeffrey S. Maurer 19,436(7)(8)(9)
Orson D. Munn 9,500(4)(10)
H. Marshall Schwarz 33,625(8)(9)
Philip L. Smith 5,800
John Hoyt Stookey 5,800(4)
Frederick B. Taylor 26,748(7)(8)(9)(11)
Richard F. Tucker 3,325(4)(5)
Carroll L. Wainwright, Jr. 3,600(4)(7)
</TABLE>
74
<PAGE> 78
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- --------------------------------------- --------------------------------------- --------
<S> <C> <C>
Robert N. Wilson 950(4)
Ruth A. Wooden 200(4)(5)
John M. Deignan 5,600(8)(9)
John C. Hover, II 2,925(8)(9)
Paul K. Napoli 6,528(8)(9)
Kenneth G. Walsh 3,309(8)(9)
John L. Kirby 700(8)
All directors and executive officers as
a group (numbering 25 as a group) 228,983 2.42
</TABLE>
- ---------------
(1) These shares consist of 1,058,834 shares allocated or attributable to the
individual accounts of participants in the 401(k) Plan and ESOP, who have
voting and dispositive power over such shares, and 276,299 shares which
have not been allocated to participant accounts, as to which shares USTNY,
as Trustee of the Plan, may be deemed to have voting and dispositive power.
In February 1995, contributions in the aggregate amount of $4,275,480 were
made to the Plan which, under the terms of the Plan, will be used to
purchase additional shares of UST Common Stock for participants' accounts
under the 401(k) portion of the Plan. These shares will be acquired through
purchases in the market. Assuming that the shares are purchased at an
average price of $66 per share, the Plan will hold an additional 64,780
shares of UST Common Stock as a result of these contributions. The number
of shares set forth in the table above does not include these 64,780
shares.
(2) Information herein with respect to GeoCapital Corporation ("GCC") has been
obtained from GCC and from GCC's filings with the Commission pursuant to
Section 13(g) of the Exchange Act by GCC, a registered investment advisor,
and Barry K. Fingerhut and Irwin Lieber, by reason of their ownership
interest in GCC. Such filing further discloses that the shares were
acquired in the ordinary course of business and were not acquired for the
purpose of and do not have the effect of changing or influencing the
control of UST and were not acquired in connection with or as a participant
in any transaction having such purpose or effect.
(3) UST, USTNY and their affiliates have sole voting power as to 16,171 of such
shares, shared voting power as to 42,452 of such shares, sole dispositive
power as to 197,237 of such shares and shared dispositive power as to
156,902 of such shares. Such shares do not include any shares held in the
401(k) Plan and ESOP. As a matter of policy, USTNY and its affiliates vote
shares held in an agency capacity only as directed by customers, and where
shares are held as a co-fiduciary, vote such shares as directed by the
other co-fiduciaries. Shares held by UST, USTNY and their affiliates as
sole fiduciary are not voted unless specific voting instructions are given
by a donor or beneficiary pursuant to the governing trust instrument.
(4) Does not include shares subject to non-employee director stock options
exercisable within 60 days of December 31, 1994 as follows: Dr. Baum and
Ms. Wooden each 1,650 shares, Messrs. Crisp and Malkin each 3,350 shares,
Mr. Munn 2,000 shares, Mr. Wilson 4,650 shares and 5,000 shares by each of
the other non-employee directors (as defined in the Plan) other than
Messrs. Etherington and Smith.
(5) Does not include shares attributable to deferred awards under the Board
Members' Deferred Compensation Plan as follows: Dr. Baum 232 shares, Mr.
Butler 8,670 shares, Mr. Crisp 1,232 shares, Mr. Douglas 5,709 shares, Mr.
Tucker 309 shares and Ms. Wooden 179 shares.
(6) Includes 1,250 shares held in a trust of which Mr. Butler is trustee and
4,914 shares held in a trust in which he has a beneficial interest.
(7) Includes 10,254 shares owned by Mr. Davison's wife, 2,500 shares owned by
Mr. Maurer's wife, 638 shares held in trust by Mr. Maurer's wife for their
children, 3,989 shares owned by Mr. Taylor's wife and
75
<PAGE> 79
300 shares owned by Mr. Wainwright's wife, with respect to which the
director in each case disclaims beneficial ownership.
(8) Does not include shares subject to employee stock options exercisable
within 60 days of December 31, 1994 as follows: Mr. Schwarz 72,250 shares,
Mr. Maurer 53,450 shares, Mr. Taylor 41,200 shares, Mr. Deignan 12,250
shares, Mr. Hover 12,325 shares, Mr. Napoli 13,875 shares, Mr. Walsh 14,500
shares and Mr. Kirby 5,000 shares.
(9) Does not include shares attributable to deferred awards under the 1989
Stock Compensation Plan and Predecessor Performance Plans as follows: Mr.
Schwarz 78,086 shares, Mr. Maurer 29,008 shares, Mr. Taylor 10,864 shares,
Mr. Deignan 5,614 shares, Mr. Hover 2,649 shares, Mr. Napoli 9,063 shares
and Mr. Walsh 7,705 shares.
(10) Includes 1,700 shares held in a trust of which Mr. Munn is trustee.
(11) Includes 270 shares held in a trust of which Mr. Taylor is sole trustee and
in which he has a beneficial interest.
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER THE DISTRIBUTION
Immediately prior to the Distribution, UST and USTNY will transfer to the
Company and New Trustco, respectively, each employee benefit and executive
compensation plan maintained by it other than any Retained Plan (as defined
under "Effect of Transactions on UST Employees and UST Benefit Plans -- Retained
Plans" in the Proxy Statement-Prospectus to which this Information Statement is
attached as Appendix H), and the Company and New Trustco, respectively, with the
approval of UST as the Company's sole stockholder, will adopt, and will assume
and become solely responsible for all liabilities and obligations of UST or
USTNY under, each of the plans so transferred to it. See "Effect of Transactions
on UST Employees and UST Benefit Plans -- Transfer of Plans" in the Proxy
Statement-Prospectus to which this Information Statement is attached as Appendix
H for a list of the plans to be so transferred.
Set out below is a description of the principal employee benefit and
compensation plans of the Company and New Trustco that will be in effect
following the Distribution and the Merger and in which the Named Executive
Officers will participate.
RETIREMENT BENEFITS
Each of the Named Executive Officers is (and will continue to be after the
Distribution and Merger) a participant in the Employees' Retirement Plan of
United States Trust Company of New York and Affiliated Companies (the
"Retirement Plan"). The Retirement Plan is a defined benefit pension plan which
is tax-qualified under Section 401(a) of the Code. The Retirement Plan provides
for payment of a pension in an annual amount equal to a specified percentage
(based on the length of a participant's credited service up to a maximum of 35
years) of the participant's average base salary for his highest five consecutive
years of base salary during the last ten plan years prior to retirement or other
termination of employment, reduced by a portion of the participant's annual
Social Security benefit. The table below shows the estimated annual pension
payable under the Retirement Plan's benefit formula upon retirement at age 65 to
persons in specified remuneration and years-of-service classifications who have
elected to receive their pensions under a straight life annuity option. The
amounts shown do not reflect reductions which would be made to offset Social
Security benefits.
76
<PAGE> 80
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSION FOR
REPRESENTATIVE
YEARS OF CREDITED SERVICE
HIGHEST CONSECUTIVE ----------------------------------
FIVE-YEAR 35 OR
AVERAGE BASE SALARY 15 25 MORE
- ------------------- -------- -------- --------
<S> <C> <C> <C>
$ 200,000 $ 67,500 $100,000 $120,000
250,000 84,375 125,000 150,000
300,000 101,250 150,000 180,000
350,000 118,125 175,000 210,000
400,000 135,000 200,000 240,000
450,000 151,875 225,000 270,000
500,000 168,750 250,000 300,000
550,000 185,625 275,000 330,000
600,000 202,500 300,000 360,000
</TABLE>
The table below sets forth the number of years of credited service and the
average base salary, in each case as of the end of 1994, that would be taken
into account in determining the pension payable under the Retirement Plan's
benefit formula to each of the Named Executive Officers.
<TABLE>
<CAPTION>
YEARS AVERAGE
NAME OF SERVICE BASE SALARY
----------------------------------------------- ---------- -----------
<S> <C> <C>
H. Marshall Schwarz............................ 27.9 $ 496,000
Jeffrey S. Maurer.............................. 24 366,000
Frederick B. Taylor............................ 28.6 337,000
John M. Deignan................................ 7 263,400
Paul K. Napoli................................. 11 246,400
</TABLE>
The amount of compensation taken into account in determining each Named
Executive Officer's pension under the Retirement Plan's formula, as shown in the
third column of the table above, represents the average of the rates of base
salary in effect for such officer as of the last day of each of the years 1990
through 1994. In the case of each such Named Executive Officer, the base salary
amounts so taken into account for the years 1992, 1993 and 1994 differ from the
amounts shown in the "Salary" column of the Summary Compensation Table for these
years, in that the latter amounts represent the base salary actually earned by
such Named Executive Officer during each such year, rather than the rate of base
salary in effect for such Named Executive Officer at the end of that year.
The pension amounts otherwise payable from the Retirement Plan are subject
to reduction to the extent necessary to comply with the Code Limitations.
However, in the case of each Named Executive Officer, any pension amount
otherwise payable under the Retirement Plan's benefit formula that cannot be
paid to such Named Executive Officer from the Retirement Plan because of the
Code Limitations will be paid to the officer under the Company's Benefit
Equalization Plan or, in the case of Messrs. Schwarz, Maurer and Taylor, under a
supplemental pension agreement which UST has entered into with each such officer
and which will be transferred to and assumed by the Company.
401(K) PLAN AND ESOP
The 401(k) Plan and ESOP is a defined contribution pension plan. Employees
are eligible to become participants in the plan following the completion of one
year of service, except that employees are eligible to make tax-deferred
elective contributions from their base salary following the completion of three
months of service. Contributions under the 401(k) Plan and ESOP consist of
annual employer contributions made on behalf of the participants under the
Plan's ESOP feature ("ESOP Contributions"), and tax-deferred elective
contributions made by the participants under the 401(k) Plan and ESOP's 401(k)
feature ("401(k) Contributions").
77
<PAGE> 81
Under the 401(k) feature of the 401(k) Plan and ESOP, a participant may
elect to have a specified percentage of his or her annual award under the 1990
Annual Incentive Plan of United States Trust Company of New York and Affiliated
Companies (the "1990 Annual Incentive Plan") (or in the case of participants who
are not eligible for awards under the 1990 Annual Incentive Plan, the Incentive
Award Plan of United States Trust Company of New York and Affiliated Companies)
and/or a specified percentage of the participant's base salary, contributed to
the 401(k) Plan and ESOP on his or her behalf as a 401(k) Contribution. All
401(k) Contributions made on behalf of a participant are paid to a trust fund
maintained under the 401(k) Plan and ESOP and invested as directed by the
participant in one or more of six investment funds, including a fund designed
for investment in UST Common Stock (the "U.S.T. Corp. Stock Fund").
The annual ESOP Contribution made to the 401(k) Plan and ESOP on behalf of
each participant is generally equal to 5% of such participant's compensation. In
the case of any participant who is a participant in the 1990 Annual Incentive
Plan, the amount of ESOP contribution to be made for the participant for any
year may not exceed the amount of the participant's award under the 1990 Annual
Incentive Plan for such year. The ESOP feature of the 401(k) Plan and ESOP is
designed to invest in UST Common Stock. The 401(k) Plan and ESOP acquired UST
Common Stock with the proceeds of loans (the "ESOP Loan"), and the shares of UST
Common Stock so acquired were placed in a suspense account. Each year, shares so
acquired are released to the extent the ESOP Loan is repaid, and the shares so
released are allocated among the individual accounts maintained for the ESOP
participants in proportion to the amounts of ESOP Contributions made on their
behalf for the year. The ESOP Loan is repaid with dividends on the UST Common
Stock acquired with the ESOP Loan proceeds, and with the ESOP Contribution, to
the extent determined by the 401(k) Plan and ESOP Committee. Each participant
receives full credit for dividends that are paid on the shares of UST Common
Stock allocated to his or her ESOP account, whether or not such dividend are
used to repay the ESOP Loan. Any ESOP Contributions and dividends not applied to
repay the ESOP Loan are invested in participants' accounts in the U.S.T. Corp.
Stock Fund.
The Code Limitations restrict the amount of the ESOP Contribution that can
be made each year on behalf of any participant. Prior to 1994, the amount of the
ESOP Contribution, which could not be made to the 401(k) Plan and ESOP on behalf
of a participant because of such limitations was provided to the participant
through an award of benefit equalization units under the 1989 Stock Compensation
Plan of U.S. Trust Corporation (the "Stock Plan"). Effective with the ESOP
Contribution to be made to the 401(k) Plan and ESOP Plan for 1994, the portion
of any ESOP Contribution that cannot be so made to the 401(k) Plan and ESOP on
behalf of a participant will be provided to the participant through a credit to
the participant's account under the Executive Deferred Compensation Plan
described below.
A participant's interest in the trust fund under the 401(k) Plan and ESOP
is at all times fully vested. Distributions from the 401(k) Plan and ESOP become
payable upon the participant's retirement, death or other termination of
employment. Withdrawals from the 401(k) portion of a participant's account may
be made after age 59 1/2 or in cases of hardship. Distributions from the 401(k)
Plan and ESOP are made in a lump sum, or, in certain cases, in annual
installments. Such payments are made in cash, except that any shares of UST
Common Stock allocated to the participant's account under the ESOP portion of
the 401(k) Plan and ESOP, and shares attributable to the portion of the
participant's account that are invested in the U.S.T. Corp. Stock Fund, may
generally be distributed in kind.
It is anticipated that following the Merger, shares of Chase Common Stock
received in exchange for UST Common Stock held in the ESOP portion of the 401(k)
Plan and ESOP and in the U.S.T. Corp. Stock Fund will be sold, and the proceeds
of such sales will be used to purchase shares of Company Common Stock. The
shares of Company Common Stock so acquired, together with the shares of Company
Common Stock received by the 401(k) Plan and ESOP pursuant to the Distribution,
will be held in the 401(k) Plan and ESOP subject to the same provisions as
applied to the shares of UST Common Stock with respect to which the distributed
shares of Company Common Stock and the shares of Chase Common Stock were
received.
78
<PAGE> 82
ANNUAL INCENTIVE AWARDS
The 1990 Annual Incentive Plan provides for annual cash awards to be earned
and paid based on the attainment of annual performance objectives established by
the Compensation Committee at the beginning of each year. The Compensation
Committee has the authority to select the officers who will be eligible to
receive awards, to determine the maximum amount available for awards each year,
to establish the performance objectives that must be met in order for awards to
be earned and paid, and to determine the extent to which such performance
objectives have been met. In the Compensation Committee's discretion, the
performance objectives may be based on corporate performance, the participant's
individual performance, or a combination of the two.
Because of the special circumstances that will obtain with respect to the
plan's operations during 1995 as a result of the Distribution and the Merger,
the annual award to be made to a participant under the plan for the year 1995
will consist of two separately determined components, one based on attainment of
performance objectives established for the period from January 1, 1995 to the
Closing Date (the "Pre-Merger Period"), and the second based on attainment of
performance objectives that will be established for the period from the Closing
Date to December 31, 1995 (the "Post-Merger Period"). UST's Compensation
Committee has determined that the aggregate amount available for awards for the
Pre-Merger Period will be based on UST's attainment of certain specified levels
of net income for such period. The amounts to be awarded to individual
participants will be determined at the close of the Pre-Merger Period and will
be based on the evaluation by UST's management and the Compensation Committee of
the participant's personal achievements and contributions. It is anticipated
that the performance goals and maximum award amounts for the Post-Merger Period
will not be established until some time shortly before the Closing Date.
Awards otherwise earned under the plan for any year are reduced (i) by the
amount of the ESOP Contribution to be made to the 401(k) Plan and ESOP on the
participant's behalf for such year, and (ii) by the amount credited to the
participant's account under the Executive Deferred Compensation Plan with
respect to any portion of the participant's ESOP Contribution that cannot be
made to the 401(k) Plan and ESOP for such year because of the Code Limitations.
Awards that are earned under the plan are payable in cash after the close of
each year, except to the extent that the participant has elected, instead, to
have any portion of such award contributed on his or her behalf as a 401(k)
Contribution to the 401(k) Plan and ESOP, or to defer any portion of his or her
award under the Executive Deferred Compensation Plan.
NEW STOCK OPTIONS
The provisions of the Stock Plan to be adopted by the Company will include
provisions for the grant of new stock options. The terms and conditions that
will apply to the new stock options include the following: (a) the aggregate
number of shares of Company Common Stock available for issuance pursuant to the
exercise of options granted during the term of the plan will be limited to
1,300,000 shares; (b) all officers of the Company, New Trustco, and their
affiliates at or above the rank of Vice President will be eligible to receive
grants of options; (c) options granted under the plan may be either options that
qualify as incentive stock options under section 422 of the Code, or
"non-qualified" stock options, as the Compensation Committee determines; (d) the
period within which options granted under the Stock Plan may be exercised may
not exceed 10 years from the date of grant; (e) the purchase price per share at
which options granted under the Stock Plan may be exercised shall not be less
than the fair market value of a share of Company Common Stock on the date the
option is granted; and (f) the total number of shares of Company Common Stock
with respect to which options may be granted under the Stock Plan to any officer
during any calendar year may not exceed 250,000 shares.
Subject to the provisions of the Stock Plan, the Compensation Committee
will be authorized to select the officers who are to be granted options; to
determine the number of shares to be covered by each option granted, and the
time or times when and the manner in which each option shall be exercised; to
determine the
79
<PAGE> 83
purchase price per share at which each option shall be exercised; and to grant
options subject to such other terms and conditions, not inconsistent with the
provisions of the Stock Plan, as it deems appropriate.
The adoption of the foregoing provisions for the grant of new stock
options, and the grant of any options pursuant thereto, will be subject to the
approval of the stockholders of the Company at its first meeting of stockholders
following the Distribution and the Merger.
OTHER FEATURES OF STOCK PLAN AND PREDECESSOR PERFORMANCE PLANS
Apart from the present stock option provisions of the Stock Plan which are
not being transferred to the Company, the Stock Plan provides for the award of
stock-based compensation to senior officers of UST, USTNY and other subsidiaries
in two other forms: in shares of restricted stock and in performance share
units. In addition, for years prior to 1994, benefit equalization units were
awarded to officers to provide them with the full benefits to which they would
have been entitled under the ESOP portion of the 401(k) Plan and ESOP but for
the Code Limitations.
The award of benefit equalization units under the Stock Plan has been
discontinued effective with the contribution to be made to the ESOP portion of
the 401(k) Plan and ESOP for the year 1994. No awards of restricted stock or
performance share units will be made under the Stock Plan during the Pre-Merger
Period. The compensation strategies and program to be adopted for the senior
officers of the Company following the Merger are currently under review. No
decision has been made yet as to whether any awards of restricted stock or
performance share units will be made under the Stock Plan after the Merger.
However, the present provisions of the Stock Plan relating to restricted stock,
performance share units and benefit equalization units, and the present
provisions of the Predecessor Performance Plans (as defined below) relating to
deferred awards under those plans, will continue to apply after the Distribution
and the Merger to previously-made awards of these forms of compensation, with
certain modifications to reflect the Distribution and the Merger. These
provisions are summarized below.
Restricted Stock
Recipients of awards of shares of restricted stock are prohibited from
selling, pledging or otherwise disposing of such shares within a period
(typically three years) determined by the Compensation Committee. Restricted
shares are held in the officer's name in a book entry account. During the
restricted period, the officer has all of the rights of a stockholder of UST
with respect to his or her restricted shares, including voting and dividend
rights. Subject to satisfaction of any tax withholding obligation, certificates
evidencing the shares are delivered to the officer free of restrictions at the
conclusion of the restricted period. In the event of the termination of
employment of an officer for any reason, all shares then subject to restrictions
are forfeited unless the Compensation Committee otherwise determines.
If the Merger is consummated, the restrictions applicable with respect to
the restricted shares of UST Common Stock credited under the Stock Plan to all
officers other than Mr. Taylor and Richard E. Brinkmann (who presently serves as
Senior Vice President, Comptroller and Principal Accounting Officer of UST and
who will serve in the same capacities with the Company) will automatically
lapse; and, subject to satisfaction of applicable tax withholding obligations,
certificates for the shares of Company Common Stock and Chase Common Stock
received pursuant to the Distribution and the Merger with respect to the shares
so credited to each such officer will be delivered to the officer free of such
restrictions.
The restrictions applicable with respect to the restricted shares of UST
Common Stock credited to Messrs. Taylor and Brinkmann will not lapse upon the
consummation of the Merger; and such restrictions will continue to apply with
respect to the shares of Company Common Stock and Chase Common Stock received
pursuant to the Distribution and the Merger with respect to their restricted
shares of UST Common Stock.
80
<PAGE> 84
Performance Share Units
The Stock Plan provides for the grant of performance share units which are
earned over a 3-year "Performance Cycle" to the extent that pre-established
performance goals for UST are met. Except for any portion of an earned award
that an officer has previously elected to defer, earned awards are paid as soon
as practicable after the close of the Performance Cycle. Awards that are not
deferred are paid in a combination of cash and UST Common Stock, as the
Compensation Committee determines, but at least 50% of a non-deferred award must
be paid in UST Common Stock. Deferred awards are either converted to "phantom
share units" ("PSUs") or credited to the "Interest Portion" of the officer's
account under the plan, as the officer may elect, but at least 50% of any
deferred award must be converted to PSUs.
Earnings are credited to the Interest Portion of a deferred award at
USTNY's prime rate, or at a rate of return matching the rate of return on any
one or more of the investment funds available for investment of the 401(k)
portion of employees' accounts under the 401(k) Plan and ESOP other than the
U.S.T. Corp. Stock Fund, as the officer may select from time to time. The "PSU
Portion" of an officer's deferred award is credited, as of the date of each
dividend payment on UST Common Stock, with dividend equivalents in the form of
additional PSU's.
Payments with respect to deferred awards are made in 10 annual installments
commencing in the year following the officer's retirement or other termination
of employment. Payments with respect to the PSU Portion of a deferred award are
made in the form of shares of UST Common Stock, and payments with respect to the
Interest Portion of a deferred award are made in cash.
If the Merger is consummated, the performance goals established for the
Performance Cycles presently in progress (i.e., those ending at the close of
1995 and 1996), will be deemed to have been fully met, and all performance share
units awarded to each officer for each of the 1995-1996 Performance Cycles will
be deemed to be fully earned and payable to the officer if he or she remains in
employment with the Company, New Trustco or their affiliates until the end of
such Performance Cycle or if he or she leaves such employment before the end of
such Performance Cycle as a result of retirement or termination due to staff
reductions associated with the Distribution and the Merger.
Performance share units were also awarded to officers of UST and USTNY and
their subsidiaries under two predecessor plans that will be transferred to and
adopted by the Company: the 1988 Long-Term Performance Plan of U.S. Trust
Corporation and the Long-Term Performance Plan of U.S. Trust Corporation
(collectively, the "Predecessor Performance Plans"). The provisions of the
Predecessor Performance Plans are substantially the same as those applicable to
the performance share unit feature of the Stock Plan. No Performance Cycles
remain in progress under the Predecessor Performance Plans. However, deferred
awards remain outstanding under these plans, in the form of PSU's and account
balances that are credited with interest under substantially the same provisions
as described above in the case of the "Interest Portion" of deferred awards
under the Stock Plan.
Each performance share unit and each PSU credited to an officer under the
Stock Plan and the Predecessor Performance Plans represents one share of UST
Common Stock, but constitutes only a "phantom" share. It entitles the holder to
be credited with dividend equivalents and to receive one share of UST Common
Stock for each such unit to the officer's credit when distributions are made to
the officer from the plan, but it does not otherwise entitle the officer to any
of the rights of a holder of UST Common Stock. As of the Closing Date, all
performance share units and all PSU's outstanding under the Stock Plan and the
Predecessor Performance Plans will be converted into new units representing
Company Common Stock in the manner described below under "Unit and Share
Adjustments".
81
<PAGE> 85
Benefit Equalization Units
For years prior to 1994, the Stock Plan provided for awards to officers of
benefit equalization units ("BEUs") with an aggregate value equal to the amount
of the ESOP contribution that could not be made to the 401(k) Plan and ESOP on
the officer's behalf for any year because of the Code Limitations. The BEUs earn
dividend equivalents with respect to dividends that are paid on UST Common
Stock, and the dividend equivalents attributable to an officer's BEUs are
credited to the officer in the form of additional BEUs. An officer's interest in
the BEUs credited to his account under the plan is fully vested at all times.
Officers receive a distribution with respect to their BEUs upon the termination
of their employment. Distribution is made in the form of shares of UST Common
Stock, and cash for fractional units.
Each BEU credited to an officer represents one share of UST Common Stock,
but constitutes only a "phantom" share. It entitles the holder to be credited
with dividend equivalents and to receive one share of UST Common Stock for each
such unit to the officer's credit when distributions are made to the officer
from the plan, but it does not otherwise entitle the officer to any of the
rights of a holder of UST Common Stock. As of the Closing Date, all BEUs
outstanding under the Stock Plan will be converted into new units representing
Company Common Stock in the manner described below under "Unit and Share
Adjustments".
Unit and Share Adjustments
As of the Closing Date, all performance share units, PSUs and BEUs then
standing to each officer's credit under the Stock Plan and the Predecessor
Performance Plans will be converted, respectively, into new performance share
units, PSUs and BEUs, each one of which will represent one share of Company
Common Stock. The number of such new units (the "New Units") to be credited to
an officer with respect to his or her performance share units, PSUs and BEUs
pursuant to such conversion will be equal to (i) the product of (A) the number
of performance share units, PSUs, or BEUs, as the case may be, standing to the
officer's credit as of the Closing Date, multiplied by (B) the Average Value Per
Share of UST Common Stock (defined below), divided by (ii) the amount
representing the 10-day average of the daily average of the high bid and low
asked prices for a share of Company Common Stock in the over-the-counter market
as reported by the National Quotation Bureau Incorporated on a "when-issued"
basis on each of the 10 trading days immediately preceding the Closing Date. For
purposes of the foregoing, the "Average Value Per Share of UST Common Stock"
shall mean the average of the daily mean between per-share high and low prices
for UST Common Stock on each trading day during the 30-day period ending on the
day immediately preceding the Closing Date, as quoted on the National Market
System.
Authorized Shares
The Company anticipates that as of the Closing Date, the number of
restricted shares of UST Common Stock that will be subject to restrictions that
will lapse upon consummation of the Merger, the number of performance share
units previously awarded with respect to performance cycles that will still be
in progress, and the number of PSU's and BEU's that will remain standing to the
credit of officers under the Stock Plan and Predecessor Performance Plans, will
represent an aggregate of 448,200 shares of UST Common Stock. Because the unit
and share adjustments described above will depend upon the relative trading
prices for the UST Common Stock and the Company Common Stock (on a "when-issued"
basis) during the 30-day and 10-day periods, respectively, ending on the day
before the Closing Date, the Company will not be able to determine, until such
preceding day, the exact number of shares of Company Common Stock that will be
needed for issuance under the Stock Plan and Predecessor Performance Plans to
satisfy the obligations of UST that the Company will be assuming. The Company
presently anticipates that the Stock Plan and the Predecessor Performance Plans,
as adopted by the Company, will provide for an aggregate of 850,000 shares of
Company Common Stock to be available for issuance under the plans with respect
to those previously-granted stock-based awards, in addition to the 1,300,000
shares of Company Common Stock that will be available for the new stock options
described above.
82
<PAGE> 86
EXECUTIVE DEFERRED COMPENSATION PLAN
The Executive Deferred Compensation Plan of U.S. Trust Corporation (the
"Executive Deferred Compensation Plan") is a nonqualified plan of deferred
compensation. All officers at or above the rank of Vice President whose total
annual compensation (as defined in the plan) exceeds $150,000 are eligible to
participate in the plan. The plan permits each eligible officer to elect to
defer portions of the officer's award for any year under the 1990 Annual
Incentive Plan and a portion of certain other incentive payments. The Executive
Deferred Compensation Plan also provides for the crediting to an eligible
officer's account under the plan of (i) amounts equal to the portion of the ESOP
contribution for 1994 or any later year that cannot be made on the officer's
behalf to the 401(k) Plan and ESOP because of the Code Limitations, and (ii) if
the officer has so elected in accordance with the provisions of the plan,
amounts equal to the payments that otherwise would have been made to the officer
with respect to his or her unexercised stock options under the UST Option Plans
(as defined under "Effect of Transactions on UST Employees and UST Benefit Plans
- -- Retained Plans" in the Proxy Statement-Prospectus), and/or with respect to
the officer's account balance under the AIP (as so defined), as a result of the
Merger constituting a "change in control" as defined in the UST Option Plans and
the AIP.
A participant's deferred amounts under the Executive Deferred Compensation
Plan are credited with interest at rates of return chosen by the participant
from among the rates of return on the investment funds available for investment
of the 401(k) portion of employees' accounts under the 401(k) Plan and ESOP
other than the U.S.T. Corp. Stock Fund.
Deferred amounts under the Executive Deferred Compensation Plan become
payable upon a participant's termination of employment. Payment of deferred
amounts generally will be made in a single cash lump sum. However, if employment
is terminated by reason of retirement or death and the participant has so
elected, payment will be made in ten annual cash installments. In the case of
amounts payable upon retirement, a participant also may elect to receive payment
in 15 annual cash installments. Participants whose employment with the Company,
New Trustco or their affiliates terminates prior to the end of 1995 as a result
of staff reductions associated with the Distribution and the Merger also may
elect to receive payment of their deferred amounts in 10 annual cash
installments.
CHANGE IN CONTROL PROVISIONS
Various compensation and benefit plans under which the Named Executive
Officers will be covered will contain provisions pursuant to which payment of
the benefits provided under the plan would be accelerated in the event of a
"change in control" of the Company (as defined in the Stock Plan), unless the
Company Board otherwise determines prior to the date of the change in control
(or not later than 45 days thereafter in certain circumstances). As defined in
the Stock Plan, a "change in control" means that any of the following events has
occurred: (i) 20% or more of the shares of Company Common Stock have been
acquired by any person (as defined in Section 3(a)(9) of the Exchange Act) other
than directly from the Company; (ii) there has been a merger or equivalent
combination after which 49% or more of the voting stock of the surviving
corporation is held by persons other than former stockholders of the Company; or
(iii) 20% or more of the directors elected by stockholders to the Company Board
are persons who were not nominated by management in the most recent proxy
statement of the Company.
Specifically, upon such a change in control (a) the restrictions applicable
to all restricted stock previously awarded under the Stock Plan would lapse, and
a cash payment would be made for each share of restricted stock equal to the
Determined Value (as defined in the Stock Plan) of a share of Company Common
Stock; (b) each new stock option granted under the Stock Plan at least six
months prior to the change in control would be cancelled in return for a cash
payment equal to the excess of the Determined Value of the shares of Company
Common Stock subject to the option over the aggregate purchase price of such
shares under the terms of the option; (c) all other new stock options
outstanding under the Stock Plan would become
83
<PAGE> 87
immediately and fully exercisable; (d) all performance share units awarded under
the Stock Plan for the performance cycle in which the change in control occurs
would be deemed to have been earned in full, and a cash payment would be made
for each such performance share unit in an amount equal to the Determined Value
of a share of Company Common Stock; (e) all previously deferred awards of
performance share units under the Stock Plan would become immediately payable in
the form of a cash payment in an amount equal to the sum of the Interest Portion
(as defined in the Stock Plan) of such awards and the Determined Value of the
number of shares of Company Common Stock corresponding to the number of units
included in the Phantom Share Unit Portion (as defined in the Stock Plan) of
such awards; (f) all benefit equalization units previously granted under the
Stock Plan would become immediately payable in the form of a cash payment in an
amount equal to the Determined Value of the number of shares of Company Common
Stock corresponding to the number of benefit equalization units credited to the
participant; (g) all awards under the 1990 Annual Incentive Plan for the year in
which the change in control occurs would be deemed to have been earned in full,
and would be immediately payable in the form of a cash payment; and (h) the
balance of each participant's account under the Executive Deferred Compensation
Plan would become immediately payable in full in the form of a cash payment.
The Retirement Plan provides that if the Retirement Plan is terminated
within four years after the occurrence of a change in control, any surplus
funding in the Retirement Plan would be applied (subject to applicable Code and
other tax qualification requirements applicable to the Retirement Plan) to
provide pro rata increases in the accrued pension benefits of all qualified
participants in the Retirement Plan, including the Named Executive Officers.
The supplemental pension agreements with Messrs. Schwarz, Maurer and Taylor
provide that in the event of the involuntary termination of any such officer's
employment following a change in control, such officer would receive from the
Company an immediate lump sum cash payment equal to the actuarial present value
of the supplemental pension that would have been payable to such officer under
the agreement at his normal retirement date if he had remained employed with the
Company until that date, at the rate of annual compensation in effect for such
officer immediately prior to such termination of his employment.
In addition, under the 1990 Change in Control and Severance Policy, each of
the Named Executive Officers would be entitled to receive severance benefits in
the event of any such Named Executive Officer's involuntary termination of
employment within two years following a change in control. In such event, each
such Named Executive Officer would be entitled to receive a cash payment in an
amount equal to the sum of (a) two times such Named Executive Officer's then
current annual base salary, (b) the average of the highest three of the previous
five years awards to such Named Executive Officer under the 1990 Annual
Incentive Plan and predecessor plan and (c) 25 times such Named Executive
Officer's then current weekly base salary.
BENEFIT PROTECTION TRUSTS
UST has established the U.S. Trust Corporation Benefits Protection Trust I
and the U.S. Trust Corporation Benefits Protection Trust II, and USTNY has
established the United States Trust Company of New York and Affiliated Companies
Executives Benefits Protection Trust, for the purposes of assisting UST and
USTNY in meeting their obligations under certain of the benefit and compensation
plans maintained by them. As adopted by the Company and New Trustco, these
trusts will cover the benefits described above under "Change in Control
Provisions" that become payable to certain officers (including the Named
Executive Officers) upon the occurrence of a "change in control" as defined
above under "Change in Control Provisions". The U.S. Trust Corporation Benefits
Protection Trust I also will cover benefits payable under the Board Members'
Deferred Compensation Plan with respect to the "Interest Portion" of a board
member's deferred amounts under that plan.
Upon the occurrence of a change in control, the trust funds would be used
to make benefit payments to the officers and board members in accordance with
the provisions of the applicable plans and the trust
84
<PAGE> 88
agreements. However, at all time prior to payment to the officers and board
members, all assets held in the trusts will remain subject to the claims of the
Company's and New Trustco's respective creditors.
The trusts are intended to qualify as "grantor trusts" with the meaning of
the Code, with the consequence that the Company and New Trustco will be treated
as owners of all of the assets and income of the trusts for federal income tax
purposes.
No contributions have been made to the trusts as yet. It is anticipated
that following the Merger, a variable premium life insurance policy that UST
presently maintains to fund benefits payable to officers and board members with
respect to the Interest Portion of their deferred amounts under the Stock Plan,
Predecessor Performance Plans and the Board Members' Deferred Compensation Plan
will be contributed to the U.S. Trust Corporation Benefits Protection Trust I.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
AUTHORIZED CAPITAL STOCK
In accordance with the Distribution Agreement, UST will appropriately cause
the Company to amend the Certificate of Incorporation of the Company in effect
prior to the Distribution to, among other things, increase the currently
authorized number of shares of common stock of the Company and to exchange the
100 shares of such common stock currently outstanding for a total number of
shares of Company Common Stock, equal to the total number of shares of UST
Common Stock outstanding immediately prior to the Distribution Record Date. See
"The Distribution -- Terms of the Distribution Agreement". Under the Restated
Certificate, the total number of shares of all classes of stock that the Company
will have authority to issue is 45,000,000 of which 40,000,000 may be shares of
Company Common Stock, and 5,000,000 may be shares of preferred stock of the
Company, par value $1.00 per share (the "Company Preferred Stock").
Based on the number of shares of UST Common Stock outstanding as of
February 1, 1995 (and assuming the exercise of stock options for 132,691 shares
prior to the Time of Distribution), it is estimated that approximately 9,622,000
shares of Company Common Stock will be distributed to UST stockholders in the
Distribution. No shares of the preferred stock of UST, par value $1.00 per share
(the "UST Preferred Stock") were outstanding at February 1, 1995. All the shares
of Company Common Stock to be distributed to UST stockholders in the
Distribution will be fully paid and non-assessable.
The Restated Certificate consists of provisions relating to the Company,
including, among others, those relating to Company Common Stock, Company
Preferred Stock, the Stockholder Rights Plan, preemptive rights and
indemnification and insurance, which are substantially similar to the provisions
of the UST Certificate of Incorporation currently in effect. The following
summary describes material provisions of, but does not purport to be complete
and is subject to, and qualified in its entirety by, the Restated Certificate
and the Restated Bylaws attached hereto as Appendix I and Appendix II,
respectively, and by applicable provisions of law.
COMPANY COMMON STOCK
Holders of shares of Company Common Stock will be entitled to one vote per
share and, subject to the voting rights, if any, of any Company Preferred Stock
issued, such voting rights will be exclusive. See "-- Preferred Stock". Except
as provided by law or by the Restated Certificate, any corporate action other
than election of directors must be authorized by a majority of votes cast at a
meeting of stockholders by holders of shares entitled to vote. Whenever
directors are to be elected by the stockholders, they will be elected at a
meeting of the stockholders by a plurality of the votes cast by the holders of
shares entitled to vote. Holders of shares of Company Common Stock do not have
cumulative voting rights for the election of directors, and, as a result, a
holder or group of holders of more than 50% of Company Common Stock entitled
85
<PAGE> 89
to vote may elect 100% of the Company Board, in which case holders of the
remaining shares of Company Common Stock would be unable to elect any person as
a director.
Holders of shares of Company Common Stock will be entitled, subject to the
rights, if any, of holders of shares of any Company Preferred Stock issued, to
have equal rights to participate in dividends when declared and, in the event of
liquidation, in the net assets of the Company available for distribution to
stockholders. See "-- Preferred Stock". The Company may not declare any
dividends on, or make any payment on account of the purchase, redemption or
other retirement of, Company Common Stock unless full cumulative dividends,
where applicable, have been paid or declared and set apart for payment upon all
outstanding shares of Company Preferred Stock. Holders of shares of Company
Common Stock do not have redemption or sinking fund rights, and none of the
holders of shares of Company Common Stock is entitled to preemptive rights or
preferential rights to subscribe for shares of Company Common Stock or any other
securities of the Company, except for certain Series A Participating Cumulative
Preferred Stock Purchase Rights (as defined below) that will be distributed
immediately following the Distribution as a dividend to holders of Company
Common Stock, which will be exercisable or transferable separately from shares
of Company Common Stock only upon the occurrence of certain events including the
acquisition by a person or group of affiliated or associated persons of 20% or
more of the outstanding shares of Company Common Stock. See "-- Stockholder
Rights Plan" below. Shares of Company Common Stock will be fully paid and
nonassessable. The Company intends to apply for the listing of the Company
Common Stock on the National Market System. See "Listing and Trading of Company
Common Stock". New Trustco will be the transfer agent and registrar for the
Company Common Stock.
The Restated Certificate will include a "fair price provision" that would
require, as a condition to the consummation of certain business combinations,
including, among others, certain mergers, asset sales, security issuances,
recapitalization and liquidations, involving the Company or its subsidiaries and
certain acquiring persons (namely, a person, entity or specified group which
beneficially owns more than 10% of the voting stock of the Company (such person
or persons, an "Interested Stockholder")), unless the "fair price" and other
procedural requirements of the provision are met, the affirmative vote of both
(i) the holders of at least 80% of the combined voting power of the then
outstanding voting shares of the Company and (ii) the holders of at least a
majority of the combined voting power of the then outstanding voting shares of
the Company held by stockholders who are not Interested Stockholders or
affiliates or associates of Interested Stockholders, in each case voting
together as a single class. Such vote will be in addition to any other
stockholder vote required and is required notwithstanding that no vote may
otherwise be required, or that some lesser percentage may be specified by law,
by the Restated Certificate, by the Restated Bylaws, or otherwise.
PREFERRED STOCK
The Company Board may authorize the issuance of Company Preferred Stock in
one or more series, which series may have such voting powers, if any, and such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, or restrictions thereof, as the Company Board shall
establish in its resolution providing for the issuance of such series. Any
series of Company Preferred Stock issued by the Company may have dividend,
dissolution and other preferences over the Company Common Stock and may be
convertible into shares of Company Common Stock. The Company has no present
plans to issue any Company Preferred Stock. The Company, will, however, at or
immediately following the Time of Distribution, designate a series of Company
Preferred Stock as Series A Participating Cumulative Preferred Stock (the
"Series A Preferred Stock") in connection with its stockholder rights plan. See
"-- Stockholder Rights Plan -- Series A Preferred Stock" below.
86
<PAGE> 90
STOCKHOLDER RIGHTS PLAN
The Rights Agreement
The Company expects that the Company Board will, at or immediately
following the Time of Distribution, declare a dividend distribution of one
Series A Participating Cumulative Preferred Stock Purchase Right (a "Right") for
each outstanding share of Company Common Stock distributed to UST stockholders
pursuant to the Distribution, under a Rights Agreement (the "Rights Agreement")
between the Company and a rights agent, substantially in the form of the Rights
Agreement, dated January 26, 1988, as amended, between UST and First Chicago
Trust Company of New York, as Rights Agent (the "UST Rights Agreement"). Each
Right will entitle the holder to purchase from the Company one one-hundredth (or
1/100th) of a share of Series A Preferred Stock (the "Preferred Shares") at a
purchase price of $100, subject to adjustment (the "Purchase Price").
The Rights will not be exercisable or transferable separately from the
shares of Company Common Stock to which they are attached until the earlier of
(i) the date on which a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 20% or more of the
outstanding shares of Company Common Stock (such event, a "Triggering Event") or
(ii) 10 days following (A) the date of approval under the Bank Holding Company
Act, (B) the date of notice of nondisapproval under the Change in Bank Control
Act or (C) the expiration, without a notice of disapproval having been issued,
of the prior notification period under the Change in Bank Control Act, in each
case for any person or group of affiliated or associated persons to acquire
beneficial ownership of 25% or more of the outstanding shares of Company Common
Stock (the earlier of such dates being called the "Distribution Date").
The Rights Agreement will provide that, as soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of Company Common Stock as of
the close of business on the Distribution Date (and to each initial record
holder of certain Company Common Stock originally issued after the Distribution
Date), and such separate Right Certificates alone will thereafter evidence the
Rights.
The Rights will not be exercisable until the Distribution Date and the
Company anticipates that, pursuant to the Rights Agreement, the Rights will
expire on July 3, 2005 (the "Expiration Date"), unless earlier redeemed by the
Company as described below.
The number of Preferred Shares or other securities issuable upon exercise
of a Right will be subject to adjustment from time to time in the event of (i)
the declaration of a stock dividend payable in Preferred Shares or a
subdivision, combination or reclassification of the Preferred Shares, (ii) the
issuance of certain rights, options or warrants to holders of Company Common
Stock or Equivalent Shares (as defined in the Rights Agreement) to subscribe for
or purchase Company Common Stock or Equivalent Shares at a price per share less
than the then-current market value of such Company Common Stock or Equivalent
Shares or (iii) the distribution to holders of Company Common Stock or
Equivalent Shares of cash (excluding regular periodic cash dividends at a rate
not in excess of 125% of the rate of the last regular cash dividend theretofore
paid) or evidences of indebtedness, assets or securities or subscription rights,
options or warrants (other than those referred to above). The Purchase Price and
the number of Preferred Shares or other securities issuable upon exercise of the
Rights are subject to adjustment from time to time in the event of the
declaration of a stock dividend on the Company Common Stock payable in Company
Common Stock or a subdivision or combination of the Company Common Stock prior
to the Distribution Date. In the event of a combination of the outstanding
Company Common Stock into a smaller number of Company Common Stock prior to the
Distribution Date, the number of Rights associated with each outstanding Company
Common Stock will be proportionately reduced.
The Preferred Shares will be authorized to be issued in fractions which are
an integral multiple of one one-hundredth (or 1/100th) of a Preferred Share. The
Company may, but is not required to, issue fractions of
87
<PAGE> 91
shares upon the exercise of Rights, and in lieu of fractional shares, the
Company may issue certificates or utilize a depository arrangement as provided
by the terms of the Rights Agreement and the Preferred Shares and, in the case
of fractions other than one one-hundredth (or 1/100th) of a Preferred Share or
integral multiples thereof, may make a cash payment based on the market price of
such shares.
In the event the Company is acquired in a merger or other business
combination or 50% or more of its assets or assets representing 50% or more of
its earning power are sold, leased, exchanged or otherwise transferred (in one
or more transactions) to a publicly traded corporation, each Right will entitle
its holder to purchase, other than Rights beneficially owned by an Acquiring
Person (which Rights will be void), for the Purchase Price, that number of
common shares of such corporation which at the time of the transaction would
have a market value of twice the Purchase Price. In the event the Company is
acquired in a merger or other business combination or 50% or more of its assets
or assets representing 50% or more of the earning power of the Company are sold,
leased, exchanged or otherwise transferred (in one or more transactions) to an
entity that is not a publicly traded corporation, each Right will entitle its
holder to purchase, other than Rights beneficially owned by an Acquiring Person
(which Rights will be void), for the Purchase Price, at such holder's option,
(i) that number of shares of such entity (or, at such holder's option, of the
surviving corporation in such acquisition, which could be the Company) which at
the time of the transaction would have a book value of twice the Purchase Price
or (ii) if such entity has an affiliate which has publicly traded common shares,
that number of common shares of such affiliate which at the time of the
transaction would have a market value of twice the Purchase Price.
In the event that any person becomes an Acquiring Person, each holder of a
Right, other than Rights beneficially owned by an Acquiring Person (which Rights
will be void), will thereafter have the right, upon exercise, to purchase for
the Purchase Price, that number of one one-hundredths (or 1/100ths) of a
Preferred Share equal in number to the number of shares of Company Common Stock
having a value equal to two times the Purchase Price of the Right.
In the event that any Acquiring Person or any affiliate or associate of any
Acquiring Person merges or otherwise combines with the Company in a transaction
in which the Company is the surviving corporation and all of the Company Common
Stock remains outstanding and unchanged, each holder of a Right, other than
Rights beneficially owned by an Acquiring Person (which Rights will be void),
will thereafter have the right to acquire, upon exercise, shares of common stock
of the acquiring company having a value equal to two times the Purchase Price of
the Right.
In addition, the Company Board may, at its option, after such time as there
is an Acquiring Person, and provided that such Acquiring Person is not the
beneficial owner of 50% or more of the outstanding shares of Company Common
Stock, exchange all or part of the Rights, other than Rights beneficially owned
by such Acquiring Person (which rights will be void), for such number of shares
of Company Common Stock equal to the aggregate market value on the date of such
exchange equal to the Purchase Price.
The Rights will be redeemable, for cash or other consideration deemed
appropriate by the Company Board, at $0.01 per Right, subject to adjustment, at
any time (the "Redemption Price"); provided, that upon the earlier of the date
of (i) notice of approval under the Bank Holding Company Act, (ii) notice of
nondisapproval under the Change in Bank Control Act or (iii) the expiration,
without a notice of disapproval having been issued, of the prior notification
period under the Change in Bank Control Act, in each case for any person or
group of affiliated or associated persons to acquire beneficial ownership of 25%
or more of the outstanding shares of Company Common Stock, and thereafter until
the earliest of (A) the occurrence of a Triggering Event or (B) the Expiration
Date, the Rights may be redeemed only if (1) there are disinterested directors
then in office and (2) the Company Board, with the concurrence of a majority of
the disinterested directors then in office, determines that such redemption is,
in their judgment, in the best interests of the Company and its stockholders.
88
<PAGE> 92
Immediately upon the action of the Company Board electing to redeem the
Rights, the Company will make an announcement thereof, and upon such election,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
At any time prior to the Distribution Date, the Company may, without the
approval of any holder of the Rights, supplement or amend any provision of the
Rights Agreement (including the date on which the Distribution Date shall
occur), except that no supplement or amendment shall be made which reduces the
Redemption Price or provides for an earlier Expiration Date. However, at any
time when any person has received notice of approval under the Bank Holding
Company Act or notice of nondisapproval under the Change in Bank Control Act, to
acquire beneficial ownership of 25% or more of the outstanding shares of Company
Common Stock, the Rights Agreement may be supplemented or amended only if the
Company Board, with the concurrence of a majority of disinterested directors,
determines that such supplement or amendment is in the best interests of the
Company and its stockholders.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
in a manner which causes the Rights to become discount Rights unless the offer
is conditioned on a substantial number of Rights being acquired.
Series A Preferred Stock
The Company will be authorized to issue Series A Preferred Stock in
connection with the Rights issued under the Rights Agreement. See "-- Authorized
Capital Stock" and "-- Preferred Stock". The holders of Series A Preferred Stock
will be entitled to all the rights and privileges set forth in the Restated
Certificate, certain features of which are described below.
The holders of Series A Preferred Stock will be entitled to receive (i)
quarterly cumulative dividends in an amount per share equal to $25 less
dividends received pursuant to the following clause (ii) and (ii) cash dividends
on each payment date for cash dividends on Company Common Stock in an amount per
share equal to the Formula Number (as defined below) then in effect times the
per share amount of all cash dividends then to be paid on each share of Company
Common Stock.
Holders of Series A Preferred Stock will be entitled to vote on each matter
on which holders of Company Common Stock will be entitled to vote, and will have
the number of votes equal to the Formula Number then in effect for each share of
Series A Preferred Stock held. Holders of Series A Preferred Stock will have
certain special voting rights in the election of directors when the equivalent
of six quarterly dividends are in default. Whenever quarterly dividends or
distributions on Series A Preferred Stock are in arrears, the Company's right to
declare or pay dividends or other distributions on, and to redeem or purchase
any shares of stock ranking junior to or on a parity with Series A Preferred
Stock is subject to certain restrictions.
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of any Series A Preferred Stock will be
entitled to receive, before any distribution is made to holders of shares of
stock ranking junior to Series A Preferred Stock or any distribution (other than
a ratable distribution) is made to the holders of stock ranking on a parity with
Series A Preferred Stock, an amount equal to the accrued dividends thereon plus
the greater of (i) $100 per share or (ii) an amount per share equal to the
Formula Number then in effect times the amount per share to be distributed to
holders of Company Common Stock.
Series A Preferred Stock will be redeemable, in whole, at the option of the
Company Board, at any time at which the Company Board determines that no person
beneficially owns more than 10% of the outstanding shares of capital stock of
the Company generally entitled to vote in the election of directors of the
Company,
89
<PAGE> 93
at a cash price equal to 125% of the product of the Formula Number times the
average market price of Company Common Stock during the preceding 30 days plus
accrued and unpaid dividends.
The initial Formula Number will be 100 (the "Formula Number"). In the event
the Company declares a dividend on the Company Common Stock payable in Company
Common Stock, or effects the subdivision, combination or reclassification of the
outstanding Company Common Stock (including any reclassification in connection
with a merger in which the Company is the surviving corporation), the Formula
Number will be appropriately adjusted. In the event of a consolidation, merger
or other transaction in which the Company Common Stock is exchanged for or
converted into other securities, cash or any other property, Series A Preferred
Stock will be similarly exchanged or converted in an amount per share equal to
the Formula Number then in effect times the amount per share of securities, cash
or other property into which each share of Company Common Stock is changed or
converted.
Series A Preferred Stock will be issuable in whole shares or in any
fraction of a share that is one one-hundredth (or 1/100th) of a share or any
integral multiple of such fraction, subject to certain adjustments. In lieu of
issuing fractional shares, the Company may issue certificates of depositary
receipts evidencing such authorized fractions of shares or, in the case of
fractions other than one one-hundredth (or 1/100th) and integral multiples
thereof, pay registered holders cash equal to the same fraction of the current
market value of a share of Company Preferred Stock (if any are outstanding) or
the equivalent number of shares of Company Common Stock.
NO PREEMPTIVE RIGHTS
No holder of any stock of any class of the Company authorized at the time
of Distribution will then have any preemptive right to subscribe to any
securities of any kind or class.
DESCRIPTION OF CERTAIN STATUTORY, CHARTER AND BYLAW PROVISIONS
Certain Statutory Provisions of the NYBCL
Section 912 of the New York Business Corporation Law ("NYBCL") governs
certain transactions between New York corporations and interested stockholders.
Under Section 912 of the NYBCL, an "interested stockholder" is one that owns at
least 20% of the outstanding voting shares of a corporation. A New York
corporation cannot engage in a business combination with an interested
stockholder for five years following the acquisition date of an interested
stockholder's shares unless the directors approve the business combination or
stock acquisition before the stockholder's stock acquisition date. Following the
five year period, a corporation cannot enter a business combination with an
interested stockholder unless (i) the directors approve the business combination
or the stockholder's stock acquisition before the stockholder's stock
acquisition date (ii) at a meeting called for such purpose, the holders of a
majority of shares not beneficially owned by an interested stockholder or an
associate or affiliate of an interested stockholder approve the business
combination or (iii) the business combination satisfies certain price and
procedural requirements. Pursuant to Section 912(d) of the NYBCL, such
restrictions do not apply to a corporation that has exempted itself by amendment
to its bylaws approved by a vote of the majority of holders of outstanding
voting stock, excluding the voting stock of an interested stockholder or an
associate or affiliate of an interested stockholder. Such an amendment will not
become effective for 18 months following its adoption and will not apply to a
business combination with an interested stockholder whose stock acquisition date
is on or before the effective date of the amendment. The Restated Certificate
contains specific provisions governing certain transactions between the Company
and interested stockholders. See "-- Company Common Stock".
Classified Board of Directors; Nomination of Directors
The provisions of the Restated Bylaws will be substantially similar to the
provisions of UST's Bylaws, as amended, currently in effect (the "UST Bylaws").
The Restated Bylaws provide for the Company's Board of
90
<PAGE> 94
Directors to be divided into three classes of directors, as nearly equal as
possible, serving staggered three-year terms. As a result, approximately
one-third of the members of the Company Board will be elected each year. See
"Management -- Directors". This provision could prevent a party who acquires
outstanding voting stock of the Company having majority voting power from
obtaining control of the Company Board until the second annual stockholders'
meeting following the date the acquiror obtains the controlling interest, and
thus could have the effect of discouraging a potential acquiror from making a
tender offer or otherwise attempting to obtain control of the Company.
Accordingly, this provision could increase the likelihood that incumbent
directors will retain their positions. In addition, the Restated Bylaws will
contain a provision whereby Company stockholders may nominate directors for
election to the Company Board provided that written notice of such election
conforms to certain timing and content restrictions set forth in the Restated
Bylaws (the UST Bylaws contain no such provision governing stockholder
nominations).
Number of Directors; Removal; Vacancies
The Restated Bylaws provide that the number of directors, in any case not
less than nine, will be determined from time to time by a majority of the entire
Company Board or at any annual or special meeting of the stockholders entitled
to vote for the election of directors. Newly created directorships resulting
from an increase in the number of directors and vacancies occurring in the
Company Board for any reason may be filled either by vote of the stockholders or
by vote of a majority of the directors then in office, even if such directors do
not constitute a quorum. An election for a directorship filled by a majority
vote of the Company Board will occur at the next stockholder meeting including
the election of directors as regular business. The Restated Bylaws further
provide that any director may be removed for cause either by vote of the
stockholders or by a majority of the entire Company Board.
Annual Meetings' Stockholder Action by Unanimous Consent; Special Meetings
The annual meeting of the stockholders of the Company for the election of
directors and the transaction of such other business as may properly come before
the meeting will be held on a date which is no later than six months after the
close of the Company's preceding fiscal year (but in no event later than
thirteen months after the last annual meeting) and at such place within or
without the State of New York as may be fixed by the Company Board.
The Restated Bylaws provide that stockholder action may be taken at an
annual or special meeting of stockholders and that action may be taken by the
written consent of stockholders in lieu of a meeting setting forth the action so
taken and signed by the holders of all outstanding shares entitled to vote
thereon. The Restated Bylaws will provide that special meetings of the Company's
stockholders may only be called by the Company Board or by the Chairman of the
Board, by the President or by a Vice Chairman of the Board. Only business
pertaining to the purpose of the special meeting, as specified in the call of
the meeting, can be transacted at such meeting. Stockholders will not be
entitled to call a special meeting or to require the Company Board to call a
special meeting of stockholders.
Amendment of Certain Charter and Bylaw Provisions
The Restated Bylaws provide that the Company Board may amend or repeal and
new Bylaws may be adopted (i) by vote of the holders of the shares at the time
entitled to vote in the election of directors at any annual meeting of the
stockholders or at any special meeting of the stockholders called for that
purpose or (ii) by the Company Board at any meeting of the Company Board, except
in the case of any particular provision at any time adopted by the stockholders
and specified as not subject to amendment or repeal by the Company Board.
91
<PAGE> 95
Preferred Stock
Under the Restated Certificate, the Company Board will have the authority
to provide by resolution for the issuance of shares of one or more series of
Company Preferred Stock and to fix the terms and conditions of each such series.
See "Description of Capital Stock of the Company -- Preferred Stock". The
authorized shares of Company Preferred Stock, as well as authorized but unissued
shares of Company Common Stock, will be available for issuance without further
action by the Company's stockholders, unless stockholder action is required by
applicable law or by the rules of a stock exchange on which any series of the
Company's stock may then be listed.
These provisions will give the Company Board the power to approve the
issuance of a series of Company Preferred Stock that could, depending on its
terms, either impede or facilitate the completion of a merger, tender offer or
other takeover attempt. For example, the issuance of new shares might impede a
business combination if the terms of those shares include voting rights which
would enable a holder to block business combinations. Conversely, the issuance
of new shares might facilitate a business combination if those shares have
general voting rights sufficient to cause an applicable percentage vote
requirement to be satisfied.
INDEMNIFICATION AND INSURANCE
Section 722 of the NYBCL authorizes the indemnification of officers and
directors if such person (i) acted in good faith, (ii) in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and (iii) in a criminal proceeding, without reasonable cause to
believe his or her conduct was unlawful. Under Section 723 of the NYBCL an
officer or director who successfully defends a proceeding is entitled to
indemnification. In certain other circumstances, the corporation must find that
the director or officer met an appropriate standard of conduct. The corporation
may make this finding through (i) the board, acting as a quorum of directors not
parties to the action, (ii) in certain circumstances, the board acting upon the
written opinion of independent legal counsel or (iii) in certain circumstances,
the stockholders. In some situations, a court, pursuant to Section 724 of the
NYBCL, may award indemnification. Section 725 of the NYBCL sets out the
conditions for advancing the payment of expenses and the circumstances in which
the corporation must notify stockholders when it makes indemnification payments.
Section 721 provides that the indemnification rights granted under the NYBCL are
not exclusive of other indemnification rights as long as such other rights do
not attach when a judgment or other final adjudication establishes that a
director or officer (i) acted in bad faith or with active and deliberate
dishonesty and that such acts were material to the cause of action adjudicated
or (ii) gained a personal financial or other advantage to which the director or
officer was not legally entitled.
The Restated Bylaws will provide that the Company will indemnify any
current or past director or officer who is party to an actual or threatened
action by virtue of such status. Under the Restated Bylaws, the Company will not
(i) indemnify any director or officer when a final judgment establishes that the
director or officer (A) acted in bad faith or with active and deliberate
dishonesty and that such acts were material to the cause of action adjudicated
or (B) gained a personal financial or other advantage to which the director or
officer was not legally entitled and (ii) be required to indemnify any director
or officer when (A) the actual or threatened action was settled without final
adjudication or without the consent of the Company or (B) the party is entitled
to indemnification pursuant to an insurance policy without regard to the
indemnification provisions of the Restated Bylaws. Any amendment which prohibits
or otherwise limits indemnification rights will not affect any party until 60
days following his or her notice of such amendment and will not apply to any act
or omission occurring before such 60th day. The Restated Bylaws also permit the
Company to enter into indemnification agreements with directors, officers and
employees. The Restated Bylaws further state that the indemnification rights
provided thereunder are not exclusive of other indemnification rights protecting
a party entitled to indemnification under the Restated Bylaws.
92
<PAGE> 96
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
10 under the Exchange Act with respect to the shares of Company Common Stock to
be distributed to UST stockholders in the Distribution. This Information
Statement, while forming a part of the Company Form 10, does not contain all of
the information set forth in the Company Form 10 and the exhibits and schedules
thereto.
The Company Form 10 and the exhibits thereto are available for inspection
and copying at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
Regional Offices of the Commission at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such information will be
obtainable by mail from the Public Reference Branch of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Following the Distribution, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy statements and other information with the Commission
that will be available for inspection and copying at the Commission's public
reference facilities referred to above. Copies of such material will be
obtainable by mail at prescribed rates by writing to the Public Reference Branch
of the Commission at the address referred to above. In addition, it is expected
that reports, proxy statements and other information concerning the Company will
be available for inspection at the offices of the NASD, 1735 K Street, N.W.,
Washington, D.C. 20006.
93
<PAGE> 97
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Acquired Person....................................................................... 26
Acquiring Person...................................................................... 85
Agency Securities..................................................................... 37
Asset Management System............................................................... 19
Asset Transfers....................................................................... 22
Audit Committee....................................................................... 68
Average Value Per Share of UST Common Stock........................................... 81
Back Office Services.................................................................. 29
Bank Holding Company Act.............................................................. 9
Bank Merger........................................................................... 29
Bank Processing Services.............................................................. 29
BEUs.................................................................................. 81
BIF................................................................................... 14
Board of Governors.................................................................... 8
Board of Trustees..................................................................... 68
Boards................................................................................ 68
Broadway Lease........................................................................ 19
Bundled Services...................................................................... 27
Campbell.............................................................................. 50
Capital Notes......................................................................... 56
CCFA.................................................................................. 17
Change of Control..................................................................... 27
Chase................................................................................. 1
Chase Acquired Business............................................................... 1
Chase Assets.......................................................................... 19
Chase Common Stock.................................................................... 4
Chase Liabilities..................................................................... 20
Chase Parties......................................................................... 24
Chubb................................................................................. 12
Closing Date.......................................................................... 7
CMB................................................................................... 29
CMOs.................................................................................. 55
Code.................................................................................. 28
Code Limitations...................................................................... 71
Commission............................................................................ 72
Company............................................................................... 1
Company Assets........................................................................ 22
Company Board......................................................................... 5
Company Common Stock.................................................................. 1
Company Form 10....................................................................... 1
Company Liabilities................................................................... 23
Company Preferred Stock............................................................... 84
Compensation Committee................................................................ 68
Contribution Agreement................................................................ 1
</TABLE>
94
<PAGE> 98
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Contribution Asset Transfers.......................................................... 19
Contribution Assets................................................................... 19
Contribution Liabilities.............................................................. 19
Core Businesses....................................................................... 1
CTC................................................................................... 11
Debentures............................................................................ 17
Deductible Amount..................................................................... 26
Default............................................................................... 14
Delafield............................................................................. 50
Delayed Asset......................................................................... 20
Delayed Liability..................................................................... 20
Disposition........................................................................... 31
Disposition Adjustments............................................................... 32
Distribution.......................................................................... 1
Distribution Agreement................................................................ 1
Distribution Asset Transfers.......................................................... 22
Distribution Assets................................................................... 22
Distribution Date..................................................................... 86
Distribution Documents................................................................ 4
Distribution Liabilities.............................................................. 23
Distribution Record Date.............................................................. 1
Effective Time........................................................................ 4
EITF 94-3............................................................................. 32
ESOP Contributions.................................................................... 77
ESOP Loan............................................................................. 77
Exchange Act.......................................................................... 1
Executive Committee................................................................... 68
Executive Deferred Compensation Plan.................................................. 82
Expiration Date....................................................................... 86
Family Office......................................................................... 27
FAS 114............................................................................... 60
FAS 118............................................................................... 60
FAS 119............................................................................... 60
FDIC.................................................................................. 14
FDICIA................................................................................ 14
FIRREA................................................................................ 14
Fixed Rate GNMAs...................................................................... 55
Formula Number........................................................................ 88
FRAs.................................................................................. 54
401(k) Contributions.................................................................. 77
401(k) Plan and ESOP.................................................................. 10
GCC................................................................................... 74
GNMA.................................................................................. 55
GNMA ARMs............................................................................. 55
IAS................................................................................... 51
</TABLE>
95
<PAGE> 99
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Indenture............................................................................. 17
Interested Stockholder................................................................ 85
Internal Reorganization............................................................... 3
Interstate Act........................................................................ 16
Investable deposits................................................................... 37
Linter Group.......................................................................... 17
Linter Subsidiaries................................................................... 17
Linter Textiles....................................................................... 17
Merger................................................................................ 1
Merger Agreement...................................................................... 1
MF Service Company.................................................................... 23
MF Service Company Retained Liabilities............................................... 23
mortgage loans........................................................................ 56
mortgage securities................................................................... 56
Named Executive Officers.............................................................. 71
NASD.................................................................................. 24
National Market System................................................................ 1
Net deposit balances.................................................................. 45
New Trustco........................................................................... 1
New Units............................................................................. 81
New UST Parties....................................................................... 24
1990 Annual Incentive Plan............................................................ 77
NYBCL................................................................................. 89
Pacific Northwest..................................................................... 44
Post Closing Covenants Agreement...................................................... 4
Post-Merger Period.................................................................... 78
Predecessor Performance Plans......................................................... 80
Preferred Shares...................................................................... 85
Pre-Merger Period..................................................................... 78
Private Letter Ruling................................................................. 5
Pro Forma Statements.................................................................. 32
Processing Business................................................................... 18
Proxy Statement-Prospectus............................................................ 1
PSUs.................................................................................. 80
Purchase Price........................................................................ 85
Redemption Price...................................................................... 87
Related Back Office................................................................... 18
Required Consent...................................................................... 20
Restated Bylaws....................................................................... 5
Restated Certificate.................................................................. 5
Restricted Processing Business........................................................ 27
Retention Amount...................................................................... 23
Retirement Plan....................................................................... 76
Right................................................................................. 85
Rights Agreement...................................................................... 85
</TABLE>
96
<PAGE> 100
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Right Certificates.................................................................... 86
Securities Act........................................................................ 11
Series A Preferred Stock.............................................................. 85
Service............................................................................... 5
Services Agreement.................................................................... 6
Stock Plan............................................................................ 77
Tax Allocation Agreement.............................................................. 4
Tier 1 capital........................................................................ 15
Tier 2 capital........................................................................ 15
Time of Distribution.................................................................. 1
Treasury Securities................................................................... 37
Triggering Event...................................................................... 86
UST................................................................................... 1
UST Board............................................................................. 1
UST Bylaws............................................................................ 89
UST Common Stock...................................................................... 1
U.S.T. Corp. Stock Fund............................................................... 77
UST Directors' Option Plan............................................................ 69
UST Preferred Stock................................................................... 84
UST Rights Agreement.................................................................. 85
USTNY................................................................................. 1
UST-WY................................................................................ 23
UST-WY Retained Liabilities........................................................... 23
</TABLE>
97
<PAGE> 101
APPENDIX I
<PAGE> 102
APPENDIX I
RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW USTC HOLDINGS CORPORATION
UNDER SECTION 807 OF THE
BUSINESS CORPORATION LAW
The undersigned, being the Chairman of the Board and the Secretary,
respectively, of NEW USTC HOLDINGS CORPORATION (the "Corporation"), hereby
certify:
1. The name of the Corporation, which is the name under which it was
formed, is NEW USTC HOLDINGS CORPORATION.
2. The certificate of incorporation of the Corporation was filed by the
Department of State on January 20, 1995 (the "Certificate of Incorporation").
3. The Certificate of Incorporation is hereby amended to effect the
following changes authorized by Article 8 of the Business Corporation Law:
(a) To make additions to the corporate purposes of the Corporation, as set
forth in Article FIRST of this restated certificate of incorporation (this
"Restated Certificate of Incorporation");
(b) To grant authority to the Board of Directors to establish and designate
the relative rights, preferences and limitations of each class of shares, as set
forth in Article FOURTH of this Restated Certificate of Incorporation;
(c) To establish a series of Preferred Shares of the Corporation, the
Series A Participating Cumulative Preferred Shares, and to designate the rights,
preferences and limitations of such shares, as set forth in Article FOURTH of
this Restated Certificate of Incorporation;
(d) To increase the aggregate number of shares which the Corporation shall
have authority to issue from 100 Common Shares, par value $1 per share, to
45,000,000 shares, consisting of 40,000,000 Common Shares, par value $1 per
share and 5,000,000 Preferred Shares, par value $1 per share, as set forth in
Article FOURTH of this Restated Certificate of Incorporation;
(e) To add a new Article FIFTH designating no preferential, preemptive or
other subscription right for shares issued by the Corporation;
(f) To add a new Article SEVENTH designating the first calendar year for
reporting by the Corporation under certain provisions of the Tax Law; and
(g) To add a new Article EIGHTH relating to transactions between the
Corporation and interested shareholders.
I-1
<PAGE> 103
4. The text of the Certificate of Incorporation is hereby amended and
restated to read as herein set forth in full:
RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW USTC HOLDINGS CORPORATION
UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW
FIRST: The name of the Corporation is NEW USTC HOLDINGS CORPORATION.
SECOND: The purpose or purposes for which the Corporation is formed are to
engage in any lawful act or activity for which corporations may be organized
under the Business Corporation Law, to engage in the business of a bank holding
company under the Federal Bank Holding Company Act of 1956, as heretofore
amended and as the same may hereafter be amended (the "Bank Holding Company
Act"), and to engage in any lawful act or activity which is or hereafter may be
permitted to be performed by a bank holding company under the Bank Holding
Company Act; provided that the Corporation is not formed to engage in any
activity requiring the consent or approval of any state official, department,
board, agency or other body without such consent or approval first being
obtained.
THIRD: The office of the Corporation in the State of New York is to be
located in the City and County of New York.
FOURTH: The aggregate number of shares of all classes which the Corporation
shall have the authority to issue is 45,000,000 shares consisting of 40,000,000
Common Shares, par value $1 per share, and 5,000,000 Preferred Shares, par value
$1 per share.
The designations and the relative rights, preferences and limitations of
the shares of each class, and the authority hereby vested in the Board of
Directors of the Corporation to establish and to fix the numbers, designations
and relative rights, preferences and limitations of each series of Preferred
Shares, are as follows:
1. The Preferred Shares may be issued from time to time by the Board of
Directors in one or more series and, subject only to the provisions of this
Article FOURTH and the limitations prescribed by law, the Board of Directors is
expressly authorized, prior to issuance, in the resolution or resolutions
providing for the issue of, or providing for a change in the number of, shares
of any particular series, and by filing a certificate of amendment of the
Certificate of Incorporation of the Corporation pursuant to the Business
Corporation Law, to establish or change the number of shares to be included in
each such series and to fix the designation and relative voting, dividend,
liquidation and other rights, preferences and limitations of the shares of each
such series. The authority of the Board of Directors with respect to each series
shall include, but shall not be limited to, determination of the following:
(a) the distinctive serial designation of such series and the number of
shares constituting such series (provided that the aggregate number of shares
constituting all series of Preferred Shares shall not exceed the aggregate
number of Preferred Shares authorized above);
(b) the times at which and the conditions under which dividends shall be
payable on shares of such series, the annual dividend rate thereon, whether
dividends shall be cumulative and, if so, from which date or dates, and the
status of such dividends as participating or non-participating;
(c) whether the shares of such series shall be redeemable and, if so, the
terms and conditions of such redemption, including the date or dates upon and
after which such shares shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
I-2
<PAGE> 104
(d) the obligation, if any, of the Corporation to retire shares of such
series pursuant to a sinking fund or redemption or purchase account;
(e) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or shares of any series
of any class, and, if so, the terms and conditions of such conversion or
exchange, including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment thereof, if any;
(f) whether the shares of such series shall have voting rights, in addition
to the voting rights otherwise provided by law, and, if so, the terms of such
voting rights;
(g) the rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation; and
(h) any other relative rights, preferences and limitations of such series.
2. All Preferred Shares shall be of equal rank with each other regardless
of series. In case the stated dividends and the amounts payable on liquidation
are not paid in full, the Preferred Shares of all series shall share ratably in
the payment of dividends including accumulations, if any, in accordance with the
sums which would be payable on such shares if all dividends were declared and
paid in full, and in any distribution of assets other than by way of dividends
in accordance with the sums which would be payable in such distribution if all
sums payable were discharged in full.
3. The Preferred Shares of any one series shall be identical with each
other in all respects except as to the dates from which cumulative dividends, if
any, thereon shall be cumulative.
4. Subject to the rights of the Preferred Shares, dividends may be paid
upon the Common Shares as and when declared by the Board of Directors out of any
funds legally available therefor.
5. Upon any liquidation, dissolution or winding up of the affairs of the
Corporation (which shall not be deemed to include a consolidation or merger of
the Corporation, or the sale of all or substantially all of the Corporation's
assets, into, with or to any other corporation or Corporations), whether
voluntary or involuntary, and after the holders of the Preferred Shares shall
have been paid in full the amounts, if any, to which they respectively shall be
entitled or provision for such payment shall have been made, the remaining net
assets of the Corporation shall be distributed pro rata to the holders of the
Common Shares.
6. There is hereby established a series of the Corporation's authorized
Preferred Shares, to be designated as the Series A Participating Cumulative
Preferred Shares, par value $1 per share. The relative rights, preferences and
limitations of the Series A Preferred Shares, insofar as not already fixed by
any other provision of this Certificate of Incorporation shall, as fixed by the
Board of Directors of the Corporation in the exercise of authority conferred by
this Certificate of Incorporation, and as permitted by Section 502 of the
Business Corporation Law, be as follows:
(i) Designation and Number of Shares. The shares of such series shall be
designated as "Series A Participating Cumulative Preferred Shares" (the "Series
A Preferred Shares"). The par value of each share of the Series A Preferred
Shares shall be $1. The number of shares initially constituting the Series A
Preferred Shares shall be 300,000; provided, however, that the number of Series
A Preferred Shares may be increased, by an amendment of this paragraph (i) of
this Section 6, approved by the Board of Directors of the Corporation, if within
the authority of the Board of Directors of the Corporation under Article FOURTH
of the Certificate of Incorporation, to such greater number of Series A
Preferred Shares as are at any time issuable upon exercise of the Rights (the
"Rights") issued pursuant to the Rights Agreement dated as of , 1995, between
the Corporation and First Chicago Trust Company of New York, as Rights Agent
(the "Rights Agreement").
(ii) Dividends or Distributions.
I-3
<PAGE> 105
(a) subject to the prior and superior rights of the holders of shares of
any other series of Preferred Shares or other class or series of capital stock
of the Corporation ranking prior and superior to the Series A Preferred Shares
with respect to dividends, the holders of shares of the Series A Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor, (1)
quarterly dividends payable in cash on the first day of March, June, September
and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or a fraction of a share of the
Series A Preferred Shares, in the amount of $25 per whole share (rounded to the
nearest cent) less the amount of all cash dividends declared on the Series A
Preferred Shares pursuant to the following clause (2) since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of the Series A Preferred Shares, and (3) dividends payable
in cash on the payment date for each cash dividend declared on the Common Shares
in an amount per whole share (rounded to the nearest cent) equal to the Formula
Number then in effect times the cash dividends then to be paid on each Common
Share. In addition, if the Corporation shall pay any dividend or make any
distribution on the Common Shares payable in assets, securities or other forms
of noncash consideration (other than dividends or distributions solely in Common
Shares), then, in each such case, the Corporation shall simultaneously pay or
make on each outstanding whole share of the Series A Preferred Shares a dividend
or distribution in like kind equal to the Formula Number then in effect times
such dividend or distribution on each Common Share. As used in this Section 6,
the "Formula Number" shall be 100; provided, however, that if at any time after
, 1995, the Corporation shall (i) declare or pay any dividend on the Common
Shares payable in Common Shares or make any distribution on the Common Shares in
Common Shares, (ii) subdivide (by a stock split or otherwise) the outstanding
Common Shares into a larger number of Common Shares or (iii) combine (by a
reverse stock split or otherwise) the outstanding Common Shares into a smaller
number of Common Shares, then in each such event the Formula Number shall be
adjusted to a number determined by multiplying the Formula Number in effect
immediately prior to such event by a fraction, the numerator of which is the
number of Common Shares that are outstanding immediately after such event and
the denominator of which is the number of Common Shares that are outstanding
immediately prior to such event (and rounding the result to the nearest whole
number); and provided, further, that if at any time after , 1995, the
Corporation shall issue any shares of its capital stock in a reclassification or
change of the outstanding Common Shares (including any such reclassification or
change in connection with a merger in which the Corporation is the surviving
corporation), then in each such event the Formula Number shall be appropriately
adjusted to reflect such reclassification or change;
(b) the Corporation shall declare a dividend or distribution on the Series
A Preferred Shares as provided in paragraph (ii)(a) above immediately prior to
or at the same time it declares a dividend or distribution on the Common Shares
(other than a dividend or distribution solely in Common Shares); provided,
however, that, in the event no dividend or distribution (other than a dividend
or distribution in Common Shares) shall have been declared on the Common Shares
during the period between any Quarterly Dividend Payment Date and the next
Quarterly Dividend Payment Date, a dividend of $25 per share on the Series A
Preferred Shares shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Shares entitled to
receive a dividend or distribution declared thereon, which record date shall be
the same as the record date for any corresponding dividend or distribution on
the Common Shares;
(c) dividends shall begin to accrue and be cumulative on outstanding Series
A Preferred Shares from and after the Quarterly Dividend Payment Date next
preceding the date of original issue of such Series A Preferred Shares;
provided, however, that dividends on Series A Preferred Shares which are
originally issued after the record date for the determination of holders of
Series A Preferred Shares entitled to receive a quarterly dividend and on or
prior to the next succeeding Quarterly Dividend Payment Date shall begin to
accrue and be cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the
I-4
<PAGE> 106
foregoing, dividends on Series A Preferred Shares which are originally issued
prior to the record date for the first Quarterly Dividend Payment, shall be
calculated as if cumulative from and after the March 1, June 1, September 1 or
December 1, as the case may be, next preceding the date of original issuance of
such Series A Preferred Shares. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Shares in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding;
(d) so long as any shares of the Series A Preferred Shares are outstanding,
no dividends or other distributions shall be declared, paid or distributed, or
set aside for payment or distribution, on the Common Shares unless, in each
case, the dividend required by this paragraph (ii) to be declared on the Series
A Preferred Shares shall have been declared and paid or set apart;
(e) the holders of the shares of Series A Preferred Shares shall not be
entitled to receive any dividends or other distributions except as provided
herein.
(iii) Voting Rights. The holders of shares of Series A Preferred Shares
shall have the following voting rights:
(a) each holder of Series A Preferred Shares shall be entitled to a number
of votes equal to the Formula Number then in effect, for each share of the
Series A Preferred Shares held of record on each matter on which holders of the
Common Shares or shareholders generally are entitled to vote, multiplied by the
number of votes per share which the holders of the Common Shares or shareholders
generally then have with respect to such matter;
(b) except as otherwise provided herein or by applicable law, the holders
of shares of Series A Preferred Shares and the holders of shares of Common
Shares shall vote together as one class for the election of directors of the
Corporation and on all other matters submitted to a vote of shareholders of the
Corporation;
(c) if at the time of any annual meeting of shareholders for the election
of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Shares are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two, subject to any limitation set forth in
this Certificate of Incorporation on the maximum number of directors then
allowable. In addition to voting together with the holders of Common Shares for
the election of other directors of the Corporation, the holders of record of the
Series A Preferred Shares, voting separately as a class to the exclusion of the
holders of Common Shares, shall be entitled at said meeting of shareholders (and
at each subsequent annual meeting of shareholders), unless all dividends in
arrears have been paid or declared and set apart for payment prior thereto, to
vote for the election of such additional directors, if any, of the Corporation,
the holders of any Series A Preferred Shares being entitled to cast a number of
votes per share of the Series A Preferred Shares equal to the Formula Number.
Until the default in payments of all dividends which permitted the election of
said directors shall cease to exist any director who shall have been so elected
pursuant to the next preceding sentence may be removed at any time by, and be
removed without cause only by, the affirmative vote of the holders of the Series
A Preferred Shares at the time entitled to cast a majority of the votes entitled
to be cast for the election of any such director at a special meeting of such
holders called for that purpose, and any vacancy thereby created may be filled
by the vote of such holders. If and when such default shall cease to exist, the
holders of the Series A Preferred Shares shall be divested of the foregoing
special voting rights, subject to revesting in the event of each and every
subsequent like default in payments of dividends. Upon the termination of the
foregoing special voting rights, the terms of office of all persons who may have
been elected director pursuant to said special voting rights shall forthwith
terminate, and the number of directors constituting the Board of Directors shall
be reduced by two or such other number of directors as shall have been added
pursuant to the provisions of this subsection (c). The voting rights granted by
this subsection (c) shall be in addition to any other voting rights granted to
the holders of the Series A Preferred Shares in this paragraph (iii);
I-5
<PAGE> 107
(d) except as provided herein, in paragraph (xi) or by applicable law,
holders of Series A Preferred Shares shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Shares as set forth herein) for authorizing or
taking any corporate action.
(iv) Certain Restrictions.
(a) whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Shares as provided in paragraph (ii) of this
Section 6 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Preferred
Shares outstanding shall have been paid in full, the Corporation shall not
(1) declare or pay dividends on, make any other distributions on, or redeem
or purchase or otherwise acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Shares;
(2) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except dividends
paid ratably on the Series A Preferred Shares and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(3) redeem or purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Shares; or
(4) purchase or otherwise acquire for consideration any shares of Series A
Preferred Shares, or any shares of stock ranking on a parity with the Series A
Preferred Shares, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes;
(b) the Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under subparagraph (a) of this
paragraph (iv), purchase or otherwise acquire such shares at such time and in
such manner.
(v) Liquidation Rights. Upon the liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution, or winding up) to the Series A Preferred Shares
unless, prior thereto, the holders of Series A Preferred Shares shall have
received an amount equal to the accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an amount
equal to the greater of (x) $100 per share or (y) an aggregate amount per share
equal to the Formula Number then in effect times the aggregate amount to be
distributed per share to holders of Common Shares, or (2) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except
distributions made ratably on the Series A Preferred Shares and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
(vi) Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the Common
Shares are exchanged for or changed into other stock or securities, cash or any
other property, then in any such case the then outstanding shares of Series A
I-6
<PAGE> 108
Preferred Shares shall at the same time be similarly exchanged or changed in an
amount per share equal to the Formula Number then in effect times the aggregate
amount of stock, securities, cash or any other property (payable in kind), as
the case may be, into which or for which each Common Share is exchanged or
changed.
(vii) Redemption; No Sinking Fund.
(a) the Series A Preferred Shares shall not be redeemable at the option of
the Corporation except as set forth in this paragraph (vii). The outstanding
Series A Preferred Shares may be redeemed at the option of the Board of
Directors as a whole, but not in part, at any time at which, in the good faith
determination of the Board of Directors no person beneficially owns more than
10% of the aggregate voting power represented by all the outstanding shares of
capital stock of the Corporation generally entitled to vote in the election of
Directors of the Corporation, at a cash price per share equal to (i) 125% of the
product of the Formula Number times the Market Value (as such term is
hereinafter defined) of the Common Shares, plus (ii) all dividends which on the
redemption date have accrued on the shares to be redeemed and have not been paid
or declared and a sum sufficient for the payment thereof set apart, without
interest. The "Market Value" on any date shall be deemed to be the average of
the daily closing prices, per share, of the Common Shares for the 30 consecutive
Trading Days immediately prior to the date in question. The closing price for
each Trading Day shall be the last sale price, regular way, or, in case no such
sale take place on such Trading Day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system if the Common Shares are listed or admitted to
trading on a national securities exchange or, if the Common Shares are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or such other system then
in use, or, if on any such Trading Day the Common Shares are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Common Shares selected by
the Board of Directors of the Corporation. If on any such Trading Day no market
maker is making a market in the Common Shares, the closing price of such Common
Shares on such Trading Day shall be deemed to be the fair value of the Common
Shares as determined in good faith by the Board of Directors of the Corporation.
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Shares are listed or admitted to trading is open
for the transaction of business or, if the Common Shares are not listed or
admitted to trading on any national securities exchange, a Monday, Tuesday,
Wednesday, Thursday or Friday which is not a day on which banking institutions
in the Borough of Manhattan, The City of New York, are authorized or obligated
by law or executive order to close;
(b) the shares of Series A Preferred Shares shall not be subject to or
entitled to the operation of a retirement or sinking fund.
(viii) Ranking. The Series A Preferred Shares shall rank equally and on a
parity with all other series of Preferred Shares of the Corporation with respect
to the payment of dividends and distribution of assets upon the liquidation,
dissolution or winding up of the Corporation.
(ix) Fractional Shares. The Series A Preferred Shares shall be issuable
upon exercise of the Rights issued pursuant to the Rights Agreement in whole
shares or in any fraction of a share that is one one-hundredth (1/100th) of a
share or any integral multiple of such fraction which shall entitle the holder,
in proportion to such holder's fractional shares, to receive dividends, exercise
voting rights, participate in distributions and to have the benefit of all other
rights of holders of Series A Preferred Shares. The Corporation, prior to the
first issuance of a share or a fraction of a share of Series A Preferred Shares,
may elect (1) to issue certificates evidencing such authorized fraction of a
share of Series A Preferred Shares or (2) to issue depository receipts
evidencing such authorized fraction of a share of Series A Preferred Shares
pursuant to an appropriate agreement between the Corporation and a depository
selected by the Corporation,
I-7
<PAGE> 109
provided that such agreement shall provide that the holders of such depository
receipts shall have all the rights, privileges and preferences to which they are
entitled as holders of the Series A Preferred Shares.
(x) Reacquired Shares. Any Series A Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Shares,
without designation as to series until such shares are once more designated as
part of a particular series by resolution of the Board of Directors.
(xi) Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A Preferred
Shares as provided herein shall be amended in any manner which would alter or
change the powers, preferences, rights or privileges of the holders of Series A
Preferred Shares so as to affect them adversely without the affirmative vote of
the holders of at least 66 2/3% of the outstanding Series A Preferred Shares,
voting as a separate class; provided, however, that no such amendment approved
by the holders of at least 66 2/3% of the outstanding Series A Preferred Shares
shall be deemed to apply to the powers, preferences, rights or privileges of any
holder of Series A Preferred Shares originally issued upon exercise of the
Rights after the time of such approval without the approval of such holder.
FIFTH: No holder of shares of the Corporation of any class, now or
hereafter authorized, shall have any preferential, preemptive or other right to
subscribe for, purchase or receive any shares of the Corporation of any class,
now or hereafter authorized, or any options or warrants for such shares, or any
rights, to subscribe to or purchase such shares, or any securities convertible
into or exchangeable for such shares, which may at any time be issued, sold or
offered for sale by the Corporation other than as the Board of Directors in its
discretion may from time to time determine on such terms and conditions as the
Board of Directors may from time to time fix.
SIXTH: The Secretary of State is designated as agent of the Corporation
upon whom process against it may be served. The mail post office address to
which the Secretary of State shall mail a copy of any process against the
Corporation served upon him or her is 114 West 47th Street, New York, New York
10036.
SEVENTH: The accounting period which the Corporation intends to establish
as its first calendar or fiscal year for reporting the franchise tax imposed by
Article Nine-A of the Tax Law of the State of New York is the period ending
December 31, 1995.
EIGHTH: (A) Except as provided in paragraph (B), the affirmative vote, at a
meeting of the shareholders of the Corporation, of (i) the holders of at least
80% of the combined voting power of the then outstanding Voting Shares (as
hereinafter defined) of the Corporation and (ii) the holders of at least a
majority of the combined voting power of the then outstanding Voting Shares of
the Corporation held by Disinterested Shareholders (as hereinafter defined), in
each case voting together as a single class, shall be required prior to and as a
condition to the consummation of any Business Combination (as hereinafter
defined). Such vote shall be in addition to any shareholder vote required
without reference to this Article EIGHTH, and shall be required notwithstanding
that no vote may otherwise be required, or that some lesser percentage may be
specified, by law, by this certificate of incorporation, by the Corporation's
bylaws or otherwise.
(B) The provisions of paragraph (A) shall not apply to a particular
Business Combination, and such Business Combination shall require only such
shareholder vote or approval (if any) as would be required without reference to
this Article EIGHTH, if either (I) the Business Combination shall have been
approved by a majority of the Continuing Directors (as hereinafter defined),
whether such approval is given before or after the transaction in which the
Interested Shareholder (as hereinafter defined) became an Interested
Shareholder, or (II) all the conditions set forth in subparagraphs (1) through
(5) below are satisfied.
(1) The transaction constituting the Business Combination shall provide
that the holders of Common Shares shall receive a consideration in exchange for
their Common Shares, and the aggregate amount of cash
I-8
<PAGE> 110
and the Fair Market Value (as hereinafter defined) as of the date of the
consummation of the Business Combination of consideration other than cash to be
received per share by holders of Common Shares in such Business Combination
shall be at least equal to the highest of the following:
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any Common Shares of which the Interested Shareholder is the Beneficial
Owner (as hereinafter defined) which were acquired (i) within the two-year
period immediately prior to the date of the first public announcement of the
proposed Business Combination (the "Announcement Date") or (ii) in the
transaction in which the Interested Shareholder became an Interested
Shareholder, whichever is higher;
(b) the Fair Market Value per Common Share on the Announcement Date or on
the date on which the Interested Shareholder became an Interested Shareholder,
whichever is higher; and
(c) (if applicable) the price per share equal to the Fair Market Value per
Common Share determined pursuant to clause (b) immediately preceding multiplied
by the ratio of (i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any Common Shares of which the Interested Shareholder is the Beneficial
Owner which were acquired within the two-year period immediately prior to the
Announcement Date to (ii) the Fair Market Value per Common Share on the first
day in such two-year period on which the Interested Shareholder was the
Beneficial Owner of any Common Shares.
(2) If the transaction constituting the Business Combination shall provide
that the holders of any class of outstanding Voting Shares other than Common
Shares shall receive a consideration in exchange for their shares, the aggregate
amount of cash and the Fair Market Value as of the date of the consummation of
the Business Combination of consideration other than cash to be received per
share by holders of such Voting Shares shall be at least equal to the highest of
the following (it being intended that the requirements of this subparagraph
(B)(2) shall be met with respect to every class of outstanding Voting Shares
other than Common Shares, whether or not the Interested Shareholder is the
Beneficial Owner of any shares of a particular class of such Voting Shares):
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class of Voting Shares of which the Interested
Shareholder is the Beneficial Owner which were acquired (i) within the two-year
period immediately prior to the Announcement Date or (ii) in the transaction in
which the Interested Shareholder became an Interested Shareholder, whichever is
higher;
(b) (if applicable) the highest preferential amount per share to which the
holders of shares of such class of Voting Shares are entitled in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(c) the Fair Market Value per share of such class of Voting Shares on the
Announcement Date or on the date on which the Interested Shareholder became an
Interested Shareholder, whichever is higher; and
(d) (if applicable) the price per share equal to the Fair Market Value per
share of such class of Voting Shares determined pursuant to clause (c)
immediately preceding multiplied by the ratio of (i) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid in order to acquire any shares of such class of Voting Shares of
which the Interested Shareholder is the Beneficial Owner which were acquired
within the two-year period immediately prior to the Announcement Date to (ii)
the Fair Market Value per share of such class of Voting Shares on the first day
in such two-year period on which the Interested Shareholder was the Beneficial
Owner of any shares of such class of Voting Shares.
(3) The consideration to be received in such Business Combination by
holders of a particular class of outstanding Voting Shares (including Common
Shares) shall be in cash or in the same form as was previously
I-9
<PAGE> 111
paid in order to acquire shares of such class of Voting Shares of which the
Interested Shareholder is the Beneficial Owner and, if the Interested
Shareholder is the Beneficial Owner of shares of any class of Voting Shares
which were acquired with varying forms of consideration, the form of
consideration to be received by holders of such class of Voting Shares shall be
either cash or the form used to acquire the largest number of shares of such
class of Voting Shares of which the Interested Shareholder is the Beneficial
Owner.
(4) After such Interested Shareholder became an Interested Shareholder and
prior to the consummation of such Business Combination, (a) such Interested
Shareholder shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees, pledges
or other financial assistance or tax credits provided by the Corporation or any
Subsidiary (as hereinafter defined), or made any major change in the
Corporation's business or equity capital structure or entered into any contract,
arrangement or understanding with the Corporation, except any such change,
contract, arrangement or understanding as may have been approved by a majority
of the Continuing Directors, (b) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividend (whether or not cumulative) on
any outstanding Preferred Shares or other shares of the Corporation entitled to
a preference over Common Shares as to dividends or upon liquidation; (c) there
shall have been (i) no reduction in the annual rate of dividends paid on the
Common Shares (except as necessary to reflect any subdivision of the Common
Shares), unless approved by a majority of the Continuing Directors, and (ii) an
increase in such annual rate of dividends (as necessary to prevent any such
reduction) in the event of any reclassification (including any reverse stock
split), recapitalization, reorganization or similar transaction which has the
effect of reducing the number of outstanding Common Shares, unless the failure
so to increase such annual rate is approved by a majority of the Continuing
Directors; (d) such Interested Shareholder shall not have become the Beneficial
Owner of any additional Voting Shares subsequent to the transaction in which it
became an Interested Shareholder; and (e) there shall have always been at least
three Continuing Directors on the Board of Directors of the Corporation.
(5) Whether or not required by law, a proxy or information statement
complying with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") shall have been mailed to all holders of Voting
Shares for the purpose of soliciting shareholder approval of such Business
Combination at least 30 days prior to the consummation thereof. Such proxy or
information statement shall contain at the front thereof, in a prominent place,
any recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors, or any of them, may have furnished
to the Corporation in writing and, if deemed advisable by a majority of the
Continuing Directors, an opinion of a reputable investment banking firm as to
the fairness (or lack of fairness) of the terms of such Business Combination
from the point of view of the Disinterested Shareholders (such investment
banking firm to be selected by a majority of the Continuing Directors, to be
furnished with all information it reasonably requests and to be paid a
reasonable fee by the Corporation for its services following the receipt by the
Corporation of such opinion).
(C) For the purposes of this Article EIGHTH:
(1) The term "Business Combination" means (i) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with an Interested
Shareholder (in a single transaction or a series of related transactions) of all
or a Substantial Part (as hereinafter defined) of the assets of the Corporation
(including without limitation any securities of a Subsidiary) or all or a
Substantial Part of the assets of a Subsidiary; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition to or with the Corporation or to
or with a Subsidiary (in a single transaction or a series of related
transactions) of all or a Substantial Part of the assets of an Interested
Shareholder; (iii) any merger or consolidation of the Corporation or any
Subsidiary into or with an Interested Shareholder or into or with another
Corporation or company which, after such merger or consolidation, would be an
Affiliate (as hereinafter defined) of an Interested Shareholder, in each case
irrespective of which Corporation or company is the surviving entity in such
merger or consolidation; (iv) the issuance or transfer of any securities of the
Corporation or a Subsidiary by the Corporation or a Subsidiary to an Interested
Shareholder, with the exception of securities which, when aggregated with all
such
I-10
<PAGE> 112
securities so issued or transferred within the preceding five years to such
Interested Shareholder and the Affiliates and Associates (as hereinafter
defined) of such Interested Shareholder, or any of them, have a Fair Market
Value of less than $13 million, determined in each case as of the time of each
issuance or transfer in question and with the exception of an issuance of
securities upon conversion of convertible securities of the Corporation or of a
Subsidiary which were not acquired by the Interested Shareholder (or any such
Affiliate or Associate) from the Corporation or any Subsidiary; (v) any
reclassification of securities (including any reverse stock split or
consolidation of shares), recapitalization, reorganization, merger or
consolidation of the Corporation with any of its Subsidiaries, or any similar
transaction (whether or not with or into or otherwise involving an Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate amount of the outstanding shares or amount of any class of equity
security of the Corporation or any Subsidiary which is directly or indirectly
owned by any Interested Shareholder; (vi) any merger of the Corporation into a
Subsidiary, or any consolidation between the Corporation and a Subsidiary,
unless the surviving or consolidated corporation or company, as the case may be,
has a provision in its certificate of incorporation identical or substantially
similar to this Article EIGHTH; (vii) the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation proposed by or on behalf of
any Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or (viii) any agreement, contract or other arrangement providing
for any of the transactions hereinabove described in this definition of Business
Combination.
(2) "Interested Shareholder" at any particular time means, with respect to
any Business Combination, any Person (as hereinafter defined) (other than the
Corporation or any Subsidiary) who or which (i) is the Beneficial Owner of 10%
or more of the outstanding Voting Shares, (ii) is an Affiliate of the
Corporation and at any time within the preceding five years was the Beneficial
Owner of 10% or more of the then outstanding Voting Shares or (iii) is at such
time an assignee of or has otherwise succeeded to the beneficial ownership of
any Voting Shares of which any Interested Shareholder was the Beneficial Owner
at any time within the two-year period immediately prior to the date in
question, if such assignment or succession shall have occurred in the course of
a transaction or series of related transactions not involving any public
offering within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). "Person" means any individual, firm, corporation, company or
other entity.
(3) A Person shall be considered the "Beneficial Owner" of any Voting
Shares (i) which are owned beneficially (whether or not owned of record) by such
Person or by any Affiliate or Associate of such Person, (ii) which such Person
or any Affiliate or Associate of such Person has (a) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement, arrangement or
understanding, or (iii) which are owned beneficially (whether or not owned of
record) by any other Person with which such first-mentioned Person or any of its
Affiliates or Associates has any agreement, arrangement or understanding with
respect to acquiring, holding, voting or disposing of any Voting Shares or
acquiring, holding or disposing of all or a Substantial Part of the assets of
the Corporation or a Subsidiary. For the purpose only of determining whether a
Person is the Beneficial Owner of 10% or more of the outstanding Voting Shares,
such outstanding shares shall be deemed to include any Voting Shares which may
be issuable pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants, options or otherwise
and of which such Person is deemed to be the Beneficial Owner pursuant to the
foregoing provisions of this subparagraph (3). In addition to such provisions,
for all purposes of this Article EIGHTH, a Person shall be deemed to be the
Beneficial Owner of Voting Shares if such Person is deemed the beneficial owner
thereof pursuant to Rule 13d-3 under the Exchange Act.
(4) For the purpose of determining whether a Person is an Interested
Shareholder pursuant to subparagraph (2) of this paragraph (C), the number of
Voting Shares deemed to be outstanding shall include shares of which the
Interested Shareholder is deemed the Beneficial Owner through application of
I-11
<PAGE> 113
subparagraph (3) of this paragraph (C) but shall not include any other Voting
Shares which may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise.
(5) "Disinterested Shareholder" means a shareholder of the Corporation who
is not an Interested Shareholder or an Affiliate or an Associate of an
Interested Shareholder.
(6) The term "Voting Shares" means shares of the Corporation entitled to
vote generally in the election of directors, considered for the purposes of this
Article EIGHTH as one class.
(7) The term "Substantial Part" as used with reference to the assets of the
Corporation, of any Subsidiary or of any Interested Shareholder means assets
having a value of more than 5% of the total consolidated assets of the
Corporation and its Subsidiaries as of the end of the Corporation's most recent
fiscal year ended prior to the time the determination is being made.
(8) For purposes of paragraph (B) of this Article EIGHTH, in the event of a
Business Combination upon consummation of which the Corporation would be the
surviving corporation or company or would continue to exist (unless it is
provided, contemplated or intended that as part of such Business Combination or
within one year after consummation thereof a plan of liquidation or dissolution
of the Corporation will be adopted or effected), the term "consideration other
than cash to be received" shall include (without limitation) Common Shares of
the Corporation retained by shareholders of the Corporation other than
Interested Shareholders who are parties to such Business Combination.
(9) "Continuing Director" means a member of the Board of Directors of the
Corporation who is not an Affiliate or an Associate of an Interested Shareholder
and not a representative or nominee of an Interested Shareholder and who either
(i) was first elected as a director prior to the date as of which an Interested
Shareholder who or which proposes to enter into or be a party to or involved in
a Business Combination became an Interested Shareholder or (ii) was designated
(before his initial election as a director) as a continuing Director by a
majority of the then Continuing Directors.
(10) "Affiliate" means a Person who directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, another Person and in addition means any "affiliate" as that term is
defined in Rule 12b-2 under the Exchange Act (the term "registrant" in such Rule
12b-2 meaning in this case the Corporation).
(11) "Associate" means (i) any corporation, company or organization of
which a Person is an officer or partner or is, directly or indirectly, the
Beneficial Owner of 5% or more of any class (or series thereof) of equity
securities, (ii) any trust or other estate in which a Person has a 5% or larger
beneficial interest of any nature or as to which a Person serves as trustee or
in a similar fiduciary capacity, (iii) any spouse of a Person, (iv) any relative
of a Person, or any relative of a spouse of a Person, who has the same residence
as such Person or spouse, and (v) any "associate" as that term is defined in
such Rule 12b-2 (the term "registrant" in such Rule 12b-2 meaning in this case
the Corporation).
(12) "Subsidiary" means any corporation or company of which a majority of
any class (or series thereof) of equity security (as defined in Rule 3a11-1
under the Exchange Act) is owned, directly, or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Shareholder set forth in subparagraph (2) of this paragraph (C), the term
"Subsidiary" shall mean only a corporation or company of which a majority of
each class (or series thereof) of equity security is owned, directly or
indirectly, by the Corporation.
(13) "Fair Market Value" means: (1) in the case of shares, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such class of shares is not quoted on the Composite Tape, on the
New York Stock Exchange, or if such class is not listed on such Exchange, on the
principal United States securities
I-12
<PAGE> 114
exchange registered under the Exchange Act on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing sale price
(or highest closing bid quotation if such closing sale price is not reported)
with respect to such shares during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotation System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a share as
determined by a majority of the Continuing Directors in good faith; and (2) in
the case of property other than cash or shares, the fair market value of such
property on the date in question as determined by a majority of the Continuing
Directors in good faith.
(14) As used in the definition of Business Combination, a "series of
related transactions" shall be deemed to include not only a series of
transactions with the same Interested Shareholder but also a series of separate
transactions with an Interested Shareholder and any Affiliate or Associate of
such Interested Shareholder.
(15) An Interested Shareholder shall be deemed to have acquired a share of
the Corporation at the time when such Interested Shareholder became the
Beneficial Owner thereof. With respect to shares owned by Affiliates, Associates
or other Persons whose ownership is attributed to an Interested Shareholder
under the foregoing definition of Beneficial Owner, if the price paid by such
Interested Shareholder for such shares is not determinable, the price so paid
shall be deemed to be the higher of (a) the price paid upon acquisition thereof
by the Affiliate, Associate or other Person or (b) the market price of the
shares in question at the time when the Interested Shareholder became the
Beneficial Owner thereof.
(D) A majority of the Continuing Directors shall have the power to
determine for the purposes of this Article EIGHTH, on the basis of information
known to them, (i) whether a Person is an Interested Shareholder, (ii) the
number of Voting Shares of which any Person is the Beneficial Owner, (iii)
whether a Person is an Affiliate or Associate of another, (iv) whether a Person
has an agreement, arrangement or understanding with another as to the matters
referred to in subparagraph (3) of paragraph (C), (v) whether the assets subject
to any Business Combination constitute a "Substantial Part" as hereinabove
defined, (vi) whether two or more transactions constitute a "series of related
transactions" as hereinabove defined and (vii) any matters referred to in
subparagraph (15) of paragraph (C). Any such determination made in good faith
shall be binding and conclusive on all parties.
(E) Any amendment, change or repeal of this Article EIGHTH, or any other
amendment of this certificate of incorporation which would have the effect of
modifying or permitting circumvention of this Article EIGHTH, shall require the
affirmative vote, at a meeting of shareholders of the Corporation, of (i) the
holders of at least 80% of the combined voting power of the then outstanding
Voting Shares and (ii) the holders of at least a majority of the combined voting
power of the then outstanding Voting Shares held by Disinterested Shareholders,
in each case voting together as a single class; provided, however, that this
paragraph (E) shall not apply to, and such 80% vote and such majority vote shall
not be required for, any such amendment, change or repeal recommended to
shareholders by a majority of the Continuing Directors and any such amendment,
change or repeal so recommended shall require only the vote, if any, required
under the applicable provisions of the New York Business Corporation Law. For
purposes of this paragraph (E) only, if at the time when any such amendment,
change or repeal is under consideration there is no proposed Business
Combination (in which event clause (i) of the definition of Continuing Director
in subparagraph (C)(9) above would be inapplicable), the "Continuing Directors"
shall be deemed to be those persons who were members of the Board of Directors
of the Corporation at the time when the amendment of this certificate of
incorporation to add this Article EIGHTH was approved by shareholders plus those
persons who are Continuing Directors pursuant to clause (ii) of subparagraph
(C)(9).
(F) Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
I-13
<PAGE> 115
(G) The fact that any Business Combination complies with the provisions of
this Article EIGHTH shall not be construed to impose any fiduciary obligation on
the Board of Directors, or any member thereof, to approve such Business
Combination or to recommend its adoption or approval by the shareholders of the
Corporation.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or its shareholders or any of them for damages for any breach of
duty in such capacity, except as may otherwise be required by applicable law.
Any repeal or modification of this Article NINTH shall not adversely affect any
right or protection of a director of the Corporation with respect to any act or
omission occurring prior to, or at the time of, such repeal or modification.
5. This Restated Certificate of Incorporation and the amendments set forth
herein have been duly authorized by the Board of Directors by unanimous written
consent, followed by the unanimous written consent of the shareholders of the
Corporation pursuant to Sections 708(b) and 615(a), respectively, of the
Business Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this Restated Certificate
of Incorporation on this th day of , 1995 and affirmed that the
statements made herein are true under penalties of perjury.
--------------------------------------
H. Marshall Schwarz
Chairman of the Board
--------------------------------------
Carol A. Strickland
Secretary
I-14
<PAGE> 116
APPENDIX II
<PAGE> 117
APPENDIX II
RESTATED
BY-LAWS
OF
NEW USTC HOLDINGS CORPORATION
ARTICLE I
SHAREHOLDERS
SECTION 1.01. Annual Meeting. The annual meeting of the shareholders of
New USTC Holdings Corporation (the "Corporation") for the election of directors
and the transaction of such other business as may properly come before the
meeting shall be held on a date which is no later than six months after the
close of the Corporation's preceding fiscal year (but in no event later than 13
months after the last annual meeting) and at such place within or without the
State of New York as shall be fixed by the Board of Directors.
SECTION 1.02. Special Meetings. Except as otherwise provided by law, a
special meeting of the shareholders may be called by the Board of Directors, by
the Chairman of the Board, by the President or by a Vice Chairman of the Board.
Any such call or request shall state the purpose or purposes of the proposed
meeting, and the business transacted at such meeting shall be confined to the
purpose or purposes stated in the call. Special meetings shall be held at such
place within or without the State of New York and on such date as may be
specified in the call thereof, but any special meeting may be called and held in
conjunction with an annual meeting of the shareholders.
SECTION 1.03. Record Date for Meetings and Other Purposes. For the purpose
of determining the shareholders entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or to express consent to or dissent
from any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the allotment of any
rights, or for the purpose of any other action, the Board of Directors may fix
in advance a date as the record date for any such determination of shareholders.
Such date shall not be more than 50 nor less than 10 days before the date of
such meeting, nor more than 50 days prior to any other action.
If no record date is so fixed by the Board of Directors, (a) the record
date for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given or, if no notice is given, the day on
which the meeting is held, and (b) the record date for determining shareholders
for any other purpose shall be at the close of business on the day on which the
resolution of the Board of Directors relating thereto is adopted.
A determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders made in accordance with this Section shall apply
to any adjournment thereof, unless the Board of Directors fixes a new record
date under this Section for the adjourned meeting.
SECTION 1.04. Notice of Meetings. Whenever shareholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, unless it is the annual meeting,
indicating that it is being issued by or at the direction of the person or
persons calling the meeting. Notice of a special meeting shall also state the
purpose or purposes for which the meeting is called. If at any meeting action is
proposed which would if taken entitle shareholders fulfilling the requirements
of Section 623 of the New York Business Corporation Law to receive payment for
their shares, the notice of such meeting shall include a statement of that
purpose and to that effect. A copy of the notice of any meeting shall be given
personally or by mail not less than 10 nor more than 50 days before the date of
the
II-1
<PAGE> 118
meeting to each shareholder entitled to vote at such meeting. If mailed, such
notice is given when deposited in the United States mail with postage thereon
prepaid directed to the shareholder at his address as it appears on the record
of shareholders, or, if he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice under this
Section.
SECTION 1.05. Waivers of Notice. Notice of any meeting of shareholders
need not be given to any shareholder who submits a signed waiver of notice, in
person or by proxy, whether before or after the meeting. The attendance of any
shareholder at a meeting, in person or by proxy, without protesting prior to the
conclusion of the meeting the lack of notice of such meeting shall constitute a
waiver of notice by him.
SECTION 1.06. List of Shareholders at Meetings. A list of shareholders as
of the record date, certified by the Secretary or transfer agent of the
Corporation, shall be produced at any meeting of shareholders upon the request
thereat or prior thereto of any shareholder. If the right to vote at any meeting
is challenged, the inspectors of election, or person presiding thereat, shall
require such list of shareholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such meeting.
SECTION 1.07. Quorum at Meetings. Except as otherwise provided by law, the
holders of a majority of the shares entitled to vote thereat shall constitute a
quorum at any meeting of shareholders for the transaction of any business, but
the shareholder present may adjourn the meeting despite the absence of a quorum.
When a quorum is once present to organize a meeting it shall not be broken by
the subsequent withdrawal of any shareholders.
SECTION 1.08. Presiding Officer and Secretary. At any meeting of the
shareholders, if neither the Chairman of the Board, the President, a Vice
Chairman of the Board nor a person designated by the Board of Directors to
preside at the meeting shall be present, the shareholders shall appoint a
presiding officer for the meeting. If neither the Secretary nor an Assistant
Secretary be present, the appointee of the person presiding at the meeting shall
act as secretary of the meeting.
SECTION 1.09. Nomination of Directors. Only persons who are nominated in
accordance with the procedures set forth in this Section 1.09 shall be eligible
for election as directors at any meeting of shareholders held for the election
of directors (an "Election Meeting"). Nominations of persons for election to the
Board of Directors of the Corporation may be made at an Election Meeting by or
at the direction of the Board of Directors or by a shareholder of the
Corporation who was a shareholder of record at the time of giving of notice
provided for in this Section 1.09, who is entitled to vote for the election of
directors at such Election Meeting and who complies with the notice procedures
set forth in this Section 1.09. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal office of
the Corporation not less than 60 days nor more than 90 days prior to such
Election Meeting; provided, however, that in the event the election Meeting is
not held within 10 business days of the date set in these By-laws for the
election of directors and less than 70 days' notice or prior public announcement
of the date of such Election Meeting is given or made to shareholders, notice by
the shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
such Election Meeting was mailed or such public announcement was made.
Notwithstanding anything in the foregoing sentence to the contrary, in the event
that the number of directors to be elected to the Board of Directors of the
Corporation at such Election
II-2
<PAGE> 119
Meeting is increased or there is a vacancy to be filled at such Election Meeting
in a class of directors whose terms do not expire at such Election Meeting and
there is no public announcement at least 70 days prior to such Election Meeting
naming all of the nominees for director or specifying the size of the enlarged
Board of Directors or the number of directors to be elected, a shareholder's
notice required by this Section 1.09 shall also be considered timely, but only
with respect to nominees for any positions created by such increase or vacancy,
if it shall be delivered to or mailed and received at the principal office of
the Corporation not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Corporation.
Such shareholder's notice to the Secretary of the Corporation shall set
forth (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment of
such person, (iii) the class and number of shares of the Corporation which are
owned beneficially by such person and (iv) any other information concerning such
person that is required to be disclosed in connection with the solicitation of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including without limitation such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); and (b) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination is made, (i) the name and address
of such shareholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such shareholder and by such
beneficial owner. At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
shareholder's notice of nomination which pertains to such nominee.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
1.09. In the event that a person is validly designated as a nominee in
accordance with the foregoing and shall thereafter become unable or unwilling to
stand for election to the Board of Directors, the Board of Directors or the
shareholder who proposed such nominee, as the case may be, may designate a
substitute nominee. The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the provisions of this Section 1.09 and if the presiding officer
should so determine, he or she shall declare to the meeting that the defective
nomination shall be disregarded. In addition to the provisions of this Section
1.09, a shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein.
SECTION 1.10. Public Announcement. For purposes of this Article I, "public
announcement" shall mean disclosure in a communication sent by first class mail
to shareholders, in a press releases reported by the Dow Jones News Service,
Reuters Information Services, Inc., Associated Press or a comparable national
news service or in a document filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 1.11. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy. Every proxy shall be signed
by the shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except as otherwise provided by law. Proxies shall be delivered to
the Secretary of the Corporation or, if inspectors are appointed to act at a
meeting, to the inspectors.
SECTION 1.12. Inspectors. The Board of Directors in advance of any meeting
of shareholders may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the person presiding at
the meeting may, and on the request of any shareholder entitled to vote
II-3
<PAGE> 120
thereat shall, appoint one or more inspectors. In case any person appointed
fails to appear or act, the vacancy may be filled by appointment made by the
Board in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector at such
meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them.
SECTION 1.13. Voting. Whenever directors are to be elected by the
shareholders, they shall be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election. Whenever any corporate action other than the election of directors is
to be taken by vote of the shareholders, it shall, except as otherwise required
by law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holder of shares entitled to vote thereon.
Except as otherwise may be provided in the certificate of incorporation of
the Corporation, every shareholder of record shall be entitled at every meeting
of shareholders to one vote for every share standing in his name on the record
of shareholders. Upon the demand of any shareholder, the vote at any election of
directors or upon any other question shall be by ballot, but otherwise the
method of voting shall be discretionary with the person presiding at the
meeting.
SECTION 1.14. Written Consent of Shareholders Without a Meeting. Whenever
shareholders are required or permitted to take any action by vote, such action
may be taken without a meeting on written consent setting forth the action so
taken and signed by the holders of all outstanding shares entitled to vote
thereon. The provisions of this Section shall not be construed to alter or
modify any provision of law or of the certificate of incorporation of the
Corporation under which the written consent of the holders of less than all
outstanding shares is sufficient for corporate action.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. Number and Qualification of Directors. The business of the
Corporation shall be managed under the direction of a Board of Directors,
consisting of such number of directors, not less than nine, as shall be fixed
from time to time by resolution adopted by a majority of the entire Board or at
any annual or special meeting of the shareholders entitled to vote for the
election of directors; provided that no decrease in the number of directors
shall shorten the term of any incumbent director. Each director shall be at
least 18 years of age. No person shall be eligible for election or qualified to
remain in office as a director who shall have attained the age of 72 years, and
any director in office shall retire as such upon attaining the age of 72 years.
SECTION 2.02. Classification and Term of Directors. The directors shall be
elected for terms of three years and shall be divided into three classes, as
nearly equal in number as possible, with the terms of office of one class
expiring each year on the date of the annual meeting of shareholders. At each
annual meeting of shareholders, directors to replace those whose terms expire at
such annual meeting shall be elected to hold office until the third succeeding
annual meeting thereafter, but each director, of whatever class, shall hold
office until a successor shall have been elected and qualify. Any increase or
decrease in the number of directors shall be so apportioned among the classes as
to make all classes as nearly equal in number as
II-4
<PAGE> 121
possible. When the number of directors is increased by the Board and any newly
created directorships are filled by the Board, there shall be no classification
of the additional directors until the next annual meeting of shareholders.
SECTION 2.03. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board for any reason may be filled either by vote of
the shareholders or by vote of a majority of the directors then in office,
although less than a quorum exists. A director elected to fill a vacancy, or to
fill a newly created directorship, shall be elected to hold office until the
next meeting of shareholders at which the election of directors is in the
regular order of business, and until a successor has been elected and qualified.
SECTION 2.04. Resignations. Any director may resign from office at any
time by delivering a resignation in writing to the Chairman of the Board, the
President, a Vice Chairman of the Board or the Secretary of the Corporation, and
the acceptance of such resignation, unless required by the terms thereof, shall
not be necessary to make such resignation effective.
SECTION 2.05. Removal of Directors. Any director may be removed for cause
either by vote of the shareholders or by a majority of the entire Board.
SECTION 2.06. Meetings. Meetings of the Board, regular or special, may be
held at any place within or without the State of New York as the Board from time
to time may fix or as shall be specified in the respective notice or waivers of
notice thereof. Within 15 days following each annual meeting of shareholders for
the election of directors, and annual meeting of the Board for the appointment
of officers and the transaction of such other business as may properly come
before the meeting shall be held. Such annual meeting of the Board shall be the
regular meeting of the Board next following the annual meeting of shareholders,
unless a special meeting of the Board shall in the meantime have been duly
called and held for such purposes. The Board may fix times and places for
regular meetings of the Board, and no notice of such meetings need be given.
Special meetings of the Board shall be held whenever called by the Chairman of
the Board, the President, a Vice Chairman of the Board or by at least one-third
of the directors at the time in office. Notice of the time and place of each
such meeting shall be given by the Secretary or by a person calling the meeting
to each director by mailing the same not later than the second day before the
meeting or personally or by telegraphing, cabling or telephoning the same not
later than the day before the meeting. A notice or waiver of notice need not
specify the purpose or purposes of any regular or special meeting of the Board.
Notice of a meeting need not be given to any director who submits a signed
waiver of notice whether before or after the meeting, or who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place. Notice of any adjournment of
a meeting of the Board shall be given to the directors who were not present at
the time of the adjournment and, unless such time and place are announced at the
meeting, to the other directors.
SECTION 2.07. Quorum and Voting. One-third of the entire Board shall
constitute a quorum for the transaction of any business. Except as otherwise
provided by law or by these By-laws, the vote of a majority of the directors
present at a meeting at the time of the vote, if a quorum is present at such
time, shall be the act of the Board.
SECTION 2.08. Written Consents and Meetings by Telephone. Any action
required or permitted to be taken by the Board or any committee thereof may be
taken without a meeting if all members of the Board or the committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board or committee shall
be filed with the minutes of the proceedings of the Board or committee. Any one
or more members of the Board or any committee thereof may participate in a
meeting of such Board or committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
II-5
<PAGE> 122
SECTION 2.09. Compensation of Directors. Directors who are not officers of
the Corporation shall be entitled to receive such compensation for services to
the Corporation in their capacities as such or otherwise in such amounts as may
be fixed from time to time by the Board. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 2.10. Entire Board. As used in these By-laws, the term "entire
Board" means the total number of directors which the Corporation would have if
there were no vacancies.
ARTICLE III
COMMITTEES
SECTION 3.01. Executive Committee. The Board, by resolution adopted by a
majority of the entire Board, may appoint an Executive Committee, consisting of
three or more directors including the Chairman of the Board and President, which
shall have all the authority of the Board when the Board is not in session,
except as may be otherwise provided by law or limited by resolution of the
Board. Minutes of each meeting of the Executive Committee shall be kept and
shall be submitted to the first regular meeting of the Board following the
meeting of the Executive Committee. The Executive Committee may adopt its own
rules of procedure and shall fix the time and place, within or without the State
of New York, of its meetings. No notice of any regular meetings of the Executive
Committee shall be required. The Executive Committee shall serve at the pleasure
of the Board.
SECTION 3.02. Other Committees. The Board, by resolution adopted by a
majority of the entire Board, may designate from among its members one or more
other committees, each consisting of three or more directors, and each of which,
to the extent provided in the resolution, shall have all the authority of the
Board except as otherwise limited by law. The Board may authorize the Chief
Executive Officer to appoint, from time to time, such other committees
consisting of directors, officers, or other persons and having such powers,
duties and functions as the Board may determine. Each such committee and each
member thereof shall serve at the pleasure of the Board, or in the case of any
committee appointed by the Chief Executive Officer, at the pleasure of the Chief
Executive Officer. A majority of the members of any such committee shall
determine its rules of procedure and the time and place of its meetings, unless
the Board, or in the case of any committee appointed by the Chief Executive
Officer, the Chief Executive Officer, shall otherwise provide.
SECTION 3.03. Quorum and Voting. A majority of the members of a committee
shall constitute a quorum for the transaction of business, and the vote of a
majority of the members present at the time of the vote, if a quorum is present
at such time, shall be the act of the committee.
SECTION 3.04. Committee Membership. The Board, or in the case of any
committee appointed by the Chief Executive Officer, the Chief Executive Officer,
may fill any vacancy in a committee and may designate one or more persons as
alternate members of a committee who may replace any absent member or members at
any meeting of such committee.
ARTICLE IV
OFFICERS, AGENTS AND EMPLOYEES
SECTION 4.01. General Provisions. The officers of the Corporation shall
include a Chairman of the Board, a President, one or more Vice Chairmen of the
Board, a Secretary, a Treasurer, one or more Vice Presidents (any one or more of
whom may be designated Executive Vice President, Senior Vice President or by
some other special designation), a Comptroller, and an Auditor, and such other
officers, including but not by way of limitation one or more Assistant
Secretaries, Assistant Treasurers and Assistant Comptrollers, as may be elected
or appointed in accordance with the provisions of these By-laws.
II-6
<PAGE> 123
The Chairman of the Board, the President, the Vice Chairmen of the Board,
Executive Vice Presidents (each of the foregoing officers being referred to
hereinafter as an "Executive Officer"), one or more other Vice Presidents, the
Secretary, the Treasurer and such other officers, if any, as the Board may
determine, shall be elected by the Board at the annual meeting of the Board
following each annual meeting of shareholders. Each such officer shall hold
office until the next annual election of officers and until a successor is
elected and shall have qualified. Any two or more offices other than the office
of President and Secretary may be held by the same person.
The Board from time to time may appoint the other officers provided for in
these By-laws and such other officers as it shall deem fit. The Chairman of the
Board, or in his absence the President, may appoint such further officers below
the rank of Vice President with such titles and duties as may be specified upon
appointment.
All officers of the Corporation may be removed or their authority suspended
by the Board, and officers appointed by the Chairman of the Board or the
President may also be removed or their authority suspended by the Chairman of
the Board, or in his absence the President, in any such case, at any time, with
or without cause. Such removal without cause shall be without prejudice to such
person's contract rights, if any, but the appointment of any person as an
officer of the Corporation shall not of itself create contract rights. A vacancy
in any office may be filled in the manner prescribed in these By-laws for
election or appointment to such office.
The compensation of officers shall be fixed by the Board; provided that
this power may be delegated to any officer as to persons under his direction or
control.
All other agents and employees of the Corporation shall be appointed, their
duties prescribed and their compensation fixed, by the Chairman of the Board or
the President, or any officer authorized to do so by either of them.
The Board may require any officer, agent or employee to give security for
the faithful performance of his duties.
SECTION 4.02. Powers and Duties of the Chairman of the Board and the
President. The Chairman of the Board and the President shall be elected from
among the members of the Board, and one of them shall be designated by the Board
as Chief Executive Officer. The Chief Executive Officer shall have general
supervision of the business and affairs of the Corporation which shall in every
case be subject to the direction and control of the Board. The Chairman of the
Board, or in his absence the President, shall preside at all meetings of the
shareholders and of the Board.
SECTION 4.03. Duties of Other Officers. The officers of the Corporation
other than the Chief Executive Officer shall participate in the management of
the business and affairs of the Corporation as directed, and in the order of
seniority as determined, by the Board. They shall perform such duties as may be
assigned to them by the Board, the Chief Executive Officer or any officer
authorized by the Board or the Chief Executive Officer to do so, or as may be
prescribed by law or by these By-laws.
SECTION 4.04. Secretary. The Secretary shall keep the minutes of all
meetings of the Board and of the Executive Committee, shall have custody of the
corporate seal, shall give notices of meetings required by these By-laws, shall
perform such other duties as may be assigned to him from time to time by the
Board or the Chief Executive Officer and, in general, shall perform those duties
incident to the office of Secretary. In the absence of the Secretary, an
Assistant Secretary shall have the authority to perform the duties of the
Secretary.
SECTION 4.05. Treasurer. The Treasurer shall have responsibility for the
care and custody of all moneys, funds and other property of the Corporation
which may come into his hands, shall perform such other duties as may be
assigned to him from time to time by the Board or the Chief Executive Officer
and, in
II-7
<PAGE> 124
general, shall perform those duties incident to the office of Treasurer. In the
absence of the Treasurer, an Assistant Treasurer shall have the authority to
perform the duties of the Treasurer.
SECTION 4.06. Comptroller. The Comptroller shall exercise general
supervision over all accounting functions of the Corporation, including
preparation of its required tax returns and reports to supervisory authorities.
He shall be responsible to the Chief Executive Officer and may report directly
to the Board or to the Executive Committee on such matters as in his judgment
should be brought to their attention. In the absence of the Comptroller, an
Assistant Comptroller shall have the authority to perform the duties of the
Comptroller.
SECTION 4.07. Auditor. The Auditor shall exercise supervision over the
Auditing Department, and he shall review and evaluate all existing controls and
procedures and be responsible for reporting on the adequacy of controls, systems
and protective procedures and devices to insure the accuracy of records and the
safety of assets owned or managed by the Corporation. He shall be responsible to
the Chief Executive Officer and to the Board and shall report directly to the
Board, the Executive Committee or an Audit Committee of the Board on such
matters as in his judgment should be brought to their attention.
SECTION 4.08. Delegation of Duties. In case of the absence of any officer
of the Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being any of the authority and
duties of such officer upon any other officer or upon any director.
ARTICLE V
INDEMNIFICATION
The Corporation shall indemnify any person made or threatened to be made a
party to any action or proceeding, whether civil or criminal, and whether or not
by or in the right of the Corporation or of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, by reason of the fact that such person, his
testator or intestate, is or was a director or officer of the Corporation or
served any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity at the request of the Corporation, against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
actually and necessarily incurred as a result of such action or proceeding, or
any appeal therein; provided that (a) no indemnification may be made to or on
behalf of any person if a judgment or other final adjudication adverse to such
person establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled, (b) no indemnification shall be
required in connection with the settlement of any pending or threatened action
or proceeding, or any other disposition thereof except a final adjudication,
unless the Corporation has consented to such settlement or other disposition and
(c) the Corporation shall not be obligated to indemnify any person by reason of
the adoption of this Article V if and to the extent such person is entitled to
be indemnified under a policy of insurance as such policy would apply in the
absence of the adoption of this Article V.
Reasonable expenses, including attorneys' fees, incurred in defending any
action or proceeding, whether threatened or pending, shall be paid or reimbursed
by the Corporation in advance of the final disposition thereof upon receipt of
an undertaking by or on behalf of the person seeking indemnification to repay
such amount to the Corporation to the extent, if any, such person is ultimately
found not to be entitled to indemnification.
Notwithstanding any other provision hereof, no repeal of this Article V, or
amendment hereof or any other corporate action or agreement which prohibits or
otherwise limits the right of any person to indemnification or advancement or
reimbursement of expenses hereunder, shall be effective as to any person until
the 60th day following notice to such person of such action, and no such repeal
or amendment or other
II-8
<PAGE> 125
corporate action or agreement shall deprive any person of any right hereunder
arising out of any alleged or actual act or omission occurring prior to such
60th day.
The Corporation is hereby authorized, but shall not be required, to enter
into agreements with any of its directors, officers or employees providing for
rights to indemnification and advancement and reimbursement of reasonable
expenses, including attorneys' fees, to the extent permitted by law, but the
Corporation's failure to do so shall not in any manner affect or limit the
rights provided for by this Article V or otherwise.
For purposes of this Article V, the term "Corporation" shall include any
legal successor to the Corporation, including any corporation which acquires all
or substantially all of the assets of the Corporation in one or more
transactions. For purposes of this Article V, the Corporation shall be deemed to
have requested a person to serve an employee benefit plan where the performance
by such person of his duties to the Corporation or any subsidiary thereof also
imposes duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan, and excise taxes assessed on a person
with respect to an employee benefit plan pursuant to applicable law shall be
considered fines.
The rights granted pursuant to or provided by the foregoing provisions of
this Article V shall be in addition to and shall not be exclusive of any other
rights to indemnification and expenses to which any person may otherwise be
entitled under any statute, rule, regulation, certificate of incorporation,
bylaw, agreement or otherwise.
ARTICLE VI
SHARES OF THE CORPORATION
SECTION 6.01. Certificates for Shares. The shares of the Corporation shall
be represented by certificates in such form as shall be determined by the Board
of Directors, signed by the Chairman of the Board, the President, a Vice
Chairman of the Board or a Vice President and the Secretary or an Assistant
Secretary or the Treasurer or Assistant Treasurers of the Corporation. Such
certificates shall be sealed with the seal of the Corporation or a facsimile
thereof and shall contain such information as is required by law to be stated
thereon. The signatures of the officers upon a certificate may be facsimiles if
the certificate is countersigned by a transfer agent or registered by a
registrar other than the Corporation itself or its employee. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the time of issue. All certificates for shares shall be consecutively numbered
or otherwise identified. All certificates exchanged or surrendered to the
Corporation for transfer shall be canceled.
SECTION 6.02. Record of Shareholders. The Corporation shall keep at the
office of the Corporation in the State of New York a record containing the names
and addresses of all shareholders, the number and class of shares held by each
and the dates when they respectively became the owners of record thereof. The
Corporation shall be entitled to treat the persons in whose names shares stand
on the record of shareholders as the owners thereof for all purposes.
SECTION 6.03. Transfer of Shares. Transfers of shares on the record of
shareholders of the Corporation shall be made only upon surrender to the
Corporation of the certificate or certificates for such shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
SECTION 6.04. Lost, Stolen or Destroyed Certificates. The Board of
Directors, in its discretion, may require the owner (or his legal
representatives) of any certificate representing shares of the Corporation
alleged to have been lost, stolen, or destroyed to give the Corporation a bond
in such sum as the Board may direct sufficient to indemnify the Corporation
against any liability or expense which it may incur by reason of the original
certificate remaining outstanding, as a condition of the issuance of a new
certificate for shares in
II-9
<PAGE> 126
the place of any certificate alleged to have been lost, stolen or destroyed.
Proper and legal evidence of such loss, theft or destruction shall be procured
for the Board if required. The Board in its discretion may refuse to issue such
new certificate save upon the order of a court having jurisdiction in such
matters.
ARTICLE VII
SEAL
The Board shall provide a seal for the Corporation which the Corporation
may use by causing it or a facsimile to be affixed or impressed or reproduced in
any other manner. Any officer of the Corporation shall have the power to use and
attest the corporate seal.
ARTICLE VIII
CONTRACTS, CHECKS, DRAFTS, ETC.
SECTION 8.01. Contracts, Etc. Except as otherwise provided in these
By-laws or by law, all checks, orders, contracts, leases, notes, drafts and
other documents and instruments in connection with the business of the
Corporation may be signed by any Executive Officer of the Corporation or by such
other officer, employee or agent thereunto authorized by resolution of the Board
of Directors, or in writing by the Chief Executive Officer, or by an officer or
officers designated by him subject to such restrictions as the Chief Executive
Officer shall prescribe.
SECTION 8.02. Auditor. Notwithstanding the foregoing, the Auditor shall
have no power to sign checks, vouchers, agreements or other documents or
instruments on behalf of the Corporation, except that the Auditor is authorized
to certify in the name of, or on behalf of, the Corporation, in its own right or
in a fiduciary or representative capacity, as to the accuracy and completeness
of any account, schedule of assets, or other document, instrument or paper
requiring such certification and to sign in the name of, or behalf of, the
Corporation reports and responses to any regulatory authority.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year.
ARTICLE X
AMENDMENTS
These By-laws may be amended or repealed and new By-laws may be adopted (a)
by vote of the holders of the shares at the time entitled to vote in the
election of directors at any annual meeting of the shareholders or at any
special meeting of the shareholders called for that purpose, or (b) by the Board
of Directors at any meeting of the Board, except in the case of any particular
provision at any time adopted by the shareholders and specified as not subject
to amendment or repeal by the Board. If any By-law regulating an impending
election of directors is adopted, amended or repealed by the Board, there shall
be set forth in the notice of the next meeting of shareholders for the election
of directors the By-law so adopted, amended or repealed, together with a concise
statement of the changes made.
II-10
<PAGE> 127
PART II
INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(A) LIST OF FINANCIAL STATEMENTS:
U.S. TRUST CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Statement of Income for the Years Ended
December 31, 1993, 1992 and 1991................................................. II-F- 1
Consolidated Statement of Condition
December 31, 1993 and 1992....................................................... II-F- 2
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1993, 1992 and 1991............................. II-F- 3
Consolidated Statement of Cash Flow for the Years Ended
December 31, 1993, 1992 and 1991................................................. II-F- 4
Notes to the Consolidated Financial Statements..................................... II-F- 5
Report of Independent Accountants.................................................. II-F-29
</TABLE>
II-1
<PAGE> 128
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME
Loans............................................................................. $ 77,204 $ 70,088 $ 69,927
Securities:
Taxable......................................................................... 67,868 77,669 70,401
Exempt from Federal Income Taxes................................................ 7,267 10,842 15,167
Federal Funds Sold and Securities Purchased Under Agreements to Resell............ 12,213 8,338 19,099
Deposits with Banks............................................................... 5,048 6,274 16,760
-------- -------- --------
Total Interest Income............................................................. 169,600 173,211 191,354
-------- -------- --------
INTEREST EXPENSE
Deposits.......................................................................... 37,478 42,450 68,639
Federal Funds Purchased, Securities Sold Under Agreements to Repurchase and Other
Borrowings...................................................................... 10,509 16,356 20,887
Long Term Debt.................................................................... 5,371 5,517 5,730
-------- -------- --------
Total Interest Expense............................................................ 53,358 64,323 95,256
-------- -------- --------
NET INTEREST INCOME............................................................... 116,242 108,888 96,098
Provision for Credit Losses....................................................... 4,000 6,000 6,025
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES............................. 112,242 102,888 90,073
-------- -------- --------
FEES AND OTHER INCOME
Fiduciary and Other Fees.......................................................... 264,075 235,824 204,948
Securities Gains, Net............................................................. 3,025 2,801 1,558
Other............................................................................. 8,863 6,939 7,165
-------- -------- --------
Total Fees and Other Income....................................................... 275,963 245,564 213,671
-------- -------- --------
Total Operating Income Net of Interest Expense and Provision for Credit Losses.... 388,205 348,452 303,744
-------- -------- --------
OPERATING EXPENSES
Salaries.......................................................................... 120,770 104,506 93,354
Employee Benefits and Incentive Compensation...................................... 68,383 60,426 47,877
-------- -------- --------
Total Salaries and Benefits....................................................... 189,153 164,932 141,231
Net Occupancy..................................................................... 40,035 37,420 36,939
Equipment......................................................................... 18,536 18,591 19,507
Other............................................................................. 67,796 68,589 57,260
-------- -------- --------
Total Operating Expenses.......................................................... 315,520 289,532 254,937
Income From Operations Before Income Tax Expense and Cumulative Effect of
Accounting Changes.............................................................. 72,685 58,920 48,807
Income Tax Expense................................................................ 30,418 22,389 17,424
-------- -------- --------
Income From Operations Before Cumulative Effect of Accounting Changes............. 42,267 36,531 31,383
Cumulative Effect of Changes in Accounting for Postretirement Benefits and Income
Taxes (Notes 9 and 17).......................................................... -- (7,780) --
-------- -------- --------
Net Income........................................................................ $ 42,267 $ 28,751 $ 31,383
======== ======== ========
Primary Net Income Per Share:
Income From Operations Before Cumulative Effect of Accounting Changes........... $ 4.26 $ 3.76 $ 3.32
Cumulative Effect of Changes in Accounting for Postretirement Benefits and
Income Taxes.................................................................. -- (0.80) --
-------- -------- --------
Net Income...................................................................... $ 4.26 $ 2.96 $ 3.32
======== ======== ========
Fully Diluted Net Income Per Share:
Income From Operations Before Cumulative Effect of Accounting Changes........... $ 4.25 $ 3.74 $ 3.27
Cumulative Effect of Changes in Accounting for Postretirement Benefits and
Income Taxes.................................................................. -- (0.80) --
-------- -------- --------
Net Income...................................................................... $ 4.25 $ 2.94 $ 3.27
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-F-1
<PAGE> 129
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31,
<TABLE>
<CAPTION>
1993 1992
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and Due from Banks........................................... $ 179,117 $ 219,709
Interest Bearing Deposits with Banks.............................. 61,476 61,860
Securities: Available for Sale, at Estimated Fair Value........... 836,532 --
Held to Maturity (Estimated Fair Value $87,069 in 1993)......... 86,748 --
Investment (Estimated Fair Value $1,222,349 in 1992)............ -- 1,196,068
Federal Funds Sold and Securities Purchased Under Agreements
to Resell....................................................... 237,000 --
Loans............................................................. 1,398,723 1,260,461
Less: Allowance for Credit Losses................................. 13,393 11,676
----------- -----------
Net Loans......................................................... 1,385,330 1,248,785
Premises and Equipment............................................ 109,767 102,080
Other Assets...................................................... 290,382 122,958
----------- -----------
Total Assets............................................ $ 3,186,352 $ 2,951,460
=========== ===========
LIABILITIES
Deposits:
Non-Interest Bearing............................................ $ 1,241,085 $ 1,220,677
Interest Bearing................................................ 1,245,529 1,134,474
----------- -----------
Total Deposits.................................................... 2,486,614 2,355,151
Federal Funds Purchased, Securities Sold Under Agreements to
Repurchase and Other Borrowings................................. 258,072 225,295
Accounts Payable and Accrued Liabilities.......................... 147,979 108,779
Long Term Debt.................................................... 65,100 65,082
----------- -----------
Total Liabilities....................................... 2,957,765 2,754,307
----------- -----------
STOCKHOLDERS' EQUITY
Commitments and Contingencies
Common Stock
Par Value....................................................... $ 1.00 $ 5.00
Authorized Shares............................................... 40,000,000 20,000,000
Issued Shares................................................... 11,436,293 11,301,213
Capital Surplus................................................... 67,898 23,280
Retained Earnings................................................. 242,112 216,839
Treasury Stock, at Cost (2,076,868 Shares in 1993 and
2,028,891 Shares in 1992)....................................... (82,857) (78,443)
Loan to ESOP...................................................... (18,697) (21,029)
Unrealized Gain, Net of Taxes, on Securities Available for Sale... 8,695 --
----------- -----------
Total Stockholders' Equity.............................. 228,587 197,153
----------- -----------
Total Liabilities and Stockholders' Equity......... $ 3,186,352 $ 2,951,460
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-F-2
<PAGE> 130
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
COMMON STOCK
Balance, Beginning of Year............................... $ 56,506 $ 55,864 $ 55,600
Issuance of Shares Under Employee Benefit Plans (135,080,
128,497 and 52,800 Shares)............................. 467 642 264
Change in Par Value of Common Stock...................... (45,537) -- --
-------- -------- --------
Balance, End of Year..................................... $ 11,436 $ 56,506 $ 55,864
======== ======== ========
CAPITAL SURPLUS
Balance, Beginning of Year............................... $ 23,280 $ 23,385 $ 22,639
Employee Benefit Plans................................... 4,011 2,282 746
Acquisitions............................................. (4,930) (2,387) --
Change in Par Value of Common Stock...................... 45,537 -- --
-------- -------- --------
Balance, End of Year..................................... $ 67,898 $ 23,280 $ 23,385
======== ======== ========
RETAINED EARNINGS
Balance, Beginning of Year............................... $216,839 $203,441 $186,150
Net Income............................................... 42,267 28,751 31,383
Cash Dividends Declared ($1.88, $1.72 and
$1.60 Per Share)....................................... (17,677) (15,860) (14,598)
Tax Benefit on Dividends Paid to ESOP.................... 683 507 506
-------- -------- --------
Balance, End of Year..................................... $242,112 $216,839 $203,441
======== ======== ========
TREASURY STOCK
Balance, Beginning of Year............................... $(78,443) $(77,452) $(73,496)
Purchases (157,500, 292,000 and 96,000 Shares)........... (8,485) (13,277) (3,862)
Issuance (Tender) of Shares Under Employee Benefit Plans,
Net (33,692, 27,780 and (639) Shares).................. 1,175 821 (94)
Issuance of Shares for Acquisitions (75,831 and 312,848
Shares)................................................ 2,896 11,465 --
-------- -------- --------
Balance, End of Year..................................... $(82,857) $(78,443) $(77,452)
======== ======== ========
LOAN TO ESOP
Balance, Beginning of Year............................... $(21,029) $(23,181) $(25,167)
Principal Payment by ESOP................................ 2,332 2,152 1,986
-------- -------- --------
Balance, End of Year..................................... $(18,697) $(21,029) $(23,181)
======== ======== ========
UNREALIZED GAIN, NET OF TAXES, ON SECURITIES AVAILABLE
FOR SALE
Balance, Beginning of Year............................... $ -- $ -- $ --
Adoption of FAS 115 -- Net Unrealized Gain, Net of Taxes,
on Securities Available for Sale,...................... 8,695 -- --
-------- -------- --------
Balance, End of Year..................................... $ 8,695 $ -- $ --
======== ======== ========
Total Stockholders' Equity............................... $228,587 $197,153 $182,057
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-F-3
<PAGE> 131
U.S. TRUST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income............................................ $ 42,267 $ 28,751 $ 31,383
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Provision for Credit Losses........................... 4,000 6,000 6,025
Depreciation and Amortization of Premises and
Equipment and Other Assets......................... 14,896 13,326 11,167
Deferred Income Taxes................................. 1,820 889 (1,348)
Net Amortization of Premium on Securities............. 10,768 9,752 2,091
Net Change in Accrued Interest, Commissions and Other
Receivables........................................ (28,886) 2,456 (3,384)
Net Change in Accounts Payable and Other
Liabilities........................................ 39,405 6,019 15,354
Cumulative Effect of Adopting FAS 106 (Before
Taxes)............................................. -- 22,968 --
Cumulative Effect of Adopting FAS 109................. -- (4,609) --
Other, Net............................................ (2,738) (84) (8,163)
--------- --------- ---------
Net Cash Provided by Operating Activities............... 81,532 85,468 53,125
--------- --------- ---------
Cash Flows From Investing Activities:
Net Change in Interest Bearing Deposits with Banks.... 384 33,480 65,232
Investment Securities:
Proceeds from Sales................................... 202,080 169,968 53,587
Proceeds from Maturities, Calls and Mandatory
Redemptions........................................ 781,561 607,660 458,981
Purchases............................................. (854,446) (961,837) (629,617)
Net Change in Federal Funds Sold and Securities
Purchased Under Agreements to Resell.................. (237,000) 304,525 (65,586)
Net Change in Loans..................................... (138,262) (96,816) (103,481)
Expenditures for Premises and Equipment, Net of
Retirements........................................... (19,405) (7,595) (7,334)
Principal Payment by ESOP............................... 2,332 2,152 1,986
Other, Net.............................................. 3,067 (17,147) (5,357)
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities........ (259,689) 34,390 (231,589)
--------- --------- ---------
Cash Flows From Financing Activities:
Net Change in Non-Interest Bearing Deposits........... 20,408 183,928 67,655
Net Change in Money Market and Other Savings
Deposits........................................... 115,971 58,284 37,102
Net Change in Time Deposits........................... (4,916) 5,066 (36,747)
Net Change in Federal Funds Purchased, Securities Sold
Under Agreements to Repurchase and Other
Borrowings......................................... 32,777 (248,486) 46,243
Repurchases/Repayment of Long Term Debt............... (5,282) (3,822) (2,031)
Issuance of Common Stock.............................. 4,297 3,119 684
Purchases of Treasury Stock........................... (8,485) (13,277) (3,862)
Dividends Paid........................................ (17,205) (15,570) (14,618)
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities........ 137,565 (30,758) 94,426
--------- --------- ---------
Net Change in Cash and Cash Equivalents................. (40,592) 89,100 (84,038)
Cash and Cash Equivalents at January 1.................. 219,709 130,609 214,647
--------- --------- ---------
Cash and Cash Equivalents at December 31................ $ 179,117 $ 219,709 $ 130,609
========= ========= =========
Income Taxes Paid....................................... $ 29,678 $ 23,670 $ 16,546
Interest Expense Paid................................... 53,536 65,436 99,850
</TABLE>
The accompanying notes are an integral part of these financial statements.
II-F-4
<PAGE> 132
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
U.S. Trust Corporation ("the Corporation") provides banking and fiduciary
services in the United States through its principal subsidiary, United States
Trust Company of New York ("the Trust Company") and its other subsidiaries. The
accounting and reporting policies of the Corporation and its subsidiaries
conform with generally accepted accounting principles and general practice
within the banking industry. The following is a summary of the significant
policies:
(a) Basis of Presentation -- The consolidated financial statements include
the accounts of the Corporation and its majority owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
(b) Trust Assets -- Property (other than cash deposits) held by the Trust
Company or the Corporation's other subsidiaries in a fiduciary or agency
capacity for customers are not assets of the Corporation and are not included in
the consolidated statement of condition.
(c) Securities -- Effective December 31, 1993, the Corporation adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," ("FAS 115"). FAS 115 requires that
an enterprise classify its investments in debt and readily marketable equity
securities as either securities held to maturity (carrying amount equals
amortized cost), securities available for sale (carrying amount equals estimated
fair value; unrealized gains and losses recorded in a separate component of
stockholders' equity) or trading securities (carrying amount equals estimated
fair value; unrealized gains and losses included in the determination of net
income.).
The Corporation has evaluated all of its investments in debt and equity
securities and has classified them as either held to maturity or available for
sale. Premiums and discounts on these securities are amortized or accreted in
accordance with the policy set forth in "Notes to the Consolidated Financial
Statements No. 1(d)." Realized gains and losses from sales of securities held to
maturity and securities available for sale are determined on a specific
identification cost basis.
Prior to the adoption of FAS 115, the Corporation had classified its
investments in debt and equity securities as investment securities, that were
carried at amortized cost. Premiums and discounts on investment securities were
amortized or accreted in accordance with the policy set forth in "Notes to the
Consolidated Financial Statements No.1(d)." Realized gains and losses from sales
of investment securities were determined on a specific identification cost
basis.
See "Notes to the Consolidated Financial Statements No. 4" for additional
discussion.
(d) Interest Bearing Financial Instruments -- Interest income/expense is
accrued on interest bearing financial instruments based upon the contractual
terms of the instrument. Premiums and discounts are amortized or accreted,
respectively, on a basis that approximates the effective yield method.
(e) Nonperforming Assets -- Nonperforming assets consist of non-accrual
financial instruments, restructured assets and real estate acquired in debt
restructurings. Interest accruals are discontinued when principal or interest is
contractually past due ninety days or more. In addition, interest accruals may
be discontinued when principal or interest is contractually past due less than
ninety days if in the opinion of management the amount due is not likely to be
paid in accordance with the terms of the contractual agreement, even though the
financial instruments are currently performing. Any accrued but unpaid interest
previously recorded on a non-accrual financial instrument is reversed against
interest income. Subsequent cash receipts of interest on non-accrual financial
instruments are applied either to the outstanding principal balance or recorded
as interest income, depending on management's assessment of the ultimate
collectibility of
II-F-5
<PAGE> 133
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
principal. Non-accrual financial instruments are generally returned to accrual
status only when all delinquent principal and interest payments are brought
current and the collectibility of future principal and interest on a timely
basis is reasonably assured.
If a financial instrument is restructured as a result of the deterioration
of a borrower's financial condition, interest will accrue at the renegotiated or
effective rate, as appropriate.
Real estate acquired in debt restructurings ("ORE") is recorded in other
assets at the lower of the carrying amount of the loan or the ORE's estimated
fair value less estimated costs to sell. After the acquisition date of the ORE,
operating expenses and revenue, additional writedowns, as appropriate, and gains
and losses on the ultimate disposition of ORE are reported in other expenses.
(f) Allowance for Credit Losses -- The allowance for credit losses is
established through charges to income based on management's evaluation of the
adequacy of the allowance in meeting present and possible future losses in the
existing credit portfolio, which includes loans, commitments to extend credit
and standby letters of credit. The adequacy of the allowance is continually
reviewed by management, taking into consideration current economic conditions,
past loss experience and the risks inherent in the credit portfolio.
(g) Premises and Equipment -- Premises and equipment, including leasehold
improvements, are stated at cost less accumulated amortization and depreciation.
Amortization and depreciation expenses are computed on a straight-line method
over the lesser of the term of the lease or the estimated useful lives of the
assets. Maintenance and repairs expenses are charged to operating expenses as
incurred.
(h) Postretirement Plans -- The Corporation has a trusteed,
noncontributory, qualified defined benefit retirement plan that provides
retirement benefits to substantially all employees. The retirement plan benefit
formula is based upon years of service, average compensation over the final
years of service and the social security covered compensation. The Corporation's
funding policy is consistent with the funding requirements of Federal laws and
regulations. Retirement plan assets are managed by the Trust Company and consist
primarily of listed stocks and commingled debt and international and domestic
equity pension trust funds. The Corporation also maintains an unfunded,
non-trusteed, noncontributory, non-qualified retirement plan for participants
whose retirement benefit payments under the qualified plan are expected to
exceed the limits imposed by Federal tax law.
Effective January 1, 1992, the Corporation adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." See "Notes to the Consolidated Financial Statements No.
17" for additional discussion.
(i) Income Taxes -- The Corporation files a consolidated Federal income tax
return. Applicable taxes of the individual companies are determined as if they
filed a separate return and every subsidiary is charged or credited for its
amount of computed tax.
Deferred income taxes are provided for items that are recognized for income
tax purposes in years other than those in which they are recognized for
financial reporting purposes.
Effective January 1, 1992, the Corporation adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." See "Notes to the
Consolidated Financial Statements No. 9" for additional discussion.
(j) Net Income Per Share -- Primary net income per share is computed by
dividing net income by the total weighted average common and common equivalent
shares outstanding. Common equivalent shares include the dilutive effect of
outstanding stock options and the assumed issuance of deferred stock awards
II-F-6
<PAGE> 134
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earned from incentive plans. Total common and common equivalent shares
outstanding amounted to 9,968,033 in 1993, 9,697,987 in 1992 and 9,466,686 in
1991.
Fully diluted net income per share is computed under the assumption that
all contingent increases in common stock have occurred to the extent that they
have a dilutive effect on net income per share. Total common shares outstanding
on a fully diluted basis amounted to 9,994,591 in 1993, 9,768,499 in 1992 and
9,592,999 in 1991.
(k) Cash and Cash Equivalents -- For purposes of the Consolidated Statement
of Cash Flows, the Corporation considers the Consolidated Statement of Condition
caption "Cash and Due from Banks" as cash and cash equivalents. For purposes of
the U.S. Trust Corporation (Parent Company Only) (See "Notes to the Consolidated
Financial Statements No. 19") Statement of Cash Flows, the Corporation considers
the Statement of Condition caption "Total Due From Banks" as cash and cash
equivalents.
2. ACQUISITIONS
On July 7, 1993, the Corporation exchanged 75,831 shares of its common
stock, valued at approximately $4.0 million, for 100% of the shares of Capital
Trust Company ("Capital Trust"), a Portland, Oregon-based trust and investment
management and consulting company. On December 1, 1992, the Corporation
exchanged 106,541 shares of its common stock, valued at approximately $5.0
million, for 100% of the shares of Campbell, Cowperthwait & Co., Inc.
("Campbell"), a New York City-based investment advisory company. These
acquisitions were accounted for as poolings-of-interests. Neither acquisition
had a significant effect on the Corporation's consolidated financial statements.
Accordingly, the results of operations for Capital Trust and Campbell have been
recorded as of their respective dates of acquisition and prior period financial
statements were not restated.
On March 31, 1992, the Corporation purchased 100% of the stock of
Delafield, Harvey, Tabell Inc., an investment advisory company located in
Princeton, New Jersey, for 206,307 shares of the Corporation's common stock
valued at $9.0 million. The acquisition was accounted for as a purchase.
Substantially all of the purchase price was allocated to the value of investment
management contracts that are being amortized on a straight-line basis over
their estimated 10 years life. The acquisition did not have a material impact on
the Corporation's 1992 operating results.
3. CASH AND DUE FROM BANKS
The average non-interest earning balances held at the Federal Reserve Bank
for the years ended December 31, 1993 and 1992 were $73 million and $58 million,
respectively. These amounts represent reserve requirements which must be
maintained on deposits. There are no other restrictions on cash and due from
banks.
4. SECURITIES
The Corporation adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," ("FAS
115") as of December 31, 1993. Prior to adopting FAS 115, all of the
Corporation's investments in debt and equity securities had been classified as
investment securities that were recorded at their amortized cost.
II-F-7
<PAGE> 135
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A comparison of the amortized cost, estimated fair value and gross
unrealized gains and losses as of December 31, 1993 for securities available for
sale and securities held to maturity, and for investment securities as of
December 31, 1992 follows.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED ESTIMATED UNREALIZED UNREALIZED
COST FAIR VALUE GAINS LOSSES
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities available for sale:
December 31, 1993:
U.S. Government and Federal Agency obligations:
U.S. Treasury obligations........................ $ 210,265 $ 212,312 $ 2,100 $ 53
Government National Mortgage Association
obligations (Ginnie Mae)(1)................... 153,239 162,379 9,401 261
U.S. Government Sponsored Agencies and
Corporations(2)............................... 189,755 190,467 784 72
---------- ---------- -------- ------
553,259 565,158 12,285 386
---------- ---------- -------- ------
States and Municipal obligations(3)................ 85,341 89,748 4,417 10
Collateralized mortgage obligations(4)............. 115,516 115,728 447 235
All other.......................................... 65,907 65,898 -- 9
---------- ---------- -------- ------
Total......................................... $ 820,023 $ 836,532 $ 17,149 $ 640
========== ========== ======== ======
Securities held to maturity:
December 31, 1993:
U.S. Government and Federal Agency obligations:
Government National Mortgage Association
obligations (Ginnie Mae)(1)................... $ 73,300 $ 73,591 $ 291 $ --
U.S. Government Sponsored Agencies and
Corporations(2)............................... 13,448 13,478 32 2
---------- ---------- -------- ------
$ 86,748 $ 87,069 $ 323 $ 2
========== ========== ======== ======
Investment securities:
December 31, 1992:
U.S. Government and Federal Agency obligations:
U.S. Treasury obligations........................ $ 335,549 $ 345,157 $ 9,608 $ --
Government National Mortgage Association
obligations (Ginnie Mae)(1)................... 268,659 279,889 12,695 1,465
U.S. Government Sponsored Agencies and
Corporations(2)............................... 154,961 155,195 523 289
---------- ---------- -------- ------
759,169 780,241 22,826 1,754
---------- ---------- -------- ------
States and Municipal obligations(3)................ 131,453 137,325 5,891 19
Collateralized mortgage obligations(4)............. 285,184 284,531 723 1,376
All other.......................................... 20,262 20,252 9 19
---------- ---------- -------- ------
Total......................................... $1,196,068 $1,222,349 $ 29,449 $3,168
========== ========== ======== ======
</TABLE>
- ---------------
(1) Backed by the full faith and credit of the U.S. Government.
II-F-8
<PAGE> 136
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) Securities available for sale are comprised of Federal National Mortgage
Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie
Mac) and Small Business Administration (SBA) obligations. Securities held to
maturity are comprised of SBA obligations. Investment securities are
comprised of Fannie Mae and Freddie Mac obligations.
(3) Comprised mainly of highly rated investment grade general obligation and
revenue bonds.
(4) Collateralized by either Ginnie Mae, Fannie Mae or Freddie Mac obligations.
The amortized cost and estimated fair value of securities available for
sale and securities held to maturity at December 31, 1993, by the earlier of
contractual maturity or call date, follows.
<TABLE>
<CAPTION>
DECEMBER 31, 1993,
-----------------------------------------------------
SECURITIES AVAILABLE SECURITIES HELD
FOR SALE TO MATURITY
----------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less........................ $ 250,079 $ 250,469 $ -- $ --
Due after one year through two years........... 34,031 35,853 -- --
Due after two years through five years......... 54,069 57,357 -- --
Due after five years through ten years......... 4,515 4,961 -- --
Due after ten years............................ 15,043 15,542 -- --
--------- --------- ------- -------
Sub-Total................................. 357,737 364,182 -- --
Collateralized mortgage obligations,
mortgage-backed securities and other
asset-backed
securities(1)(2)(3).......................... 458,510 468,574 86,748 87,069
--------- --------- ------- -------
Total................................ $ 816,247 $ 832,756 $86,748 $87,069
========= ========= ======= =======
</TABLE>
- ---------------
(1) In excess of 98% and 84% of securities available for sale and securities
held to maturity, respectively, are collateralized mortgage obligations and
mortgage-backed securities.
(2) At December 31, 1993, the Corporation's available for sale collateralized
mortgage obligations, mortgage-backed securities and other asset-backed
securities had a weighted-average life of 2.6 years and the Corporation's
held to maturity mortgage-backed securities and other asset-backed
securities had a weighted-average life of 7.8 years, reflecting anticipated
future prepayments based on a consensus of dealers in the market.
(3) Expected maturities for collateralized mortgage obligations, mortgage-backed
securities and other asset-backed securities may differ from contractual
maturities because borrowers have the right to prepay obligations with or
without prepayment penalties.
(4) Excludes $3,776 of Federal Reserve Bank and Federal Home Loan Bank stock.
II-F-9
<PAGE> 137
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of securities gains, net for the years ended December 31,
1993, 1992 and 1991 follows.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross realized gains from sales.......................... $3,347 $2,871 $1,624
Gross realized (losses) from sales....................... (370) (206) (43)
Net gains (losses) on maturities, calls and
mandatory redemptions.................................. 48 136 (23)
------ ------ ------
Securities gains, net............................... $3,025 $2,801 $1,558
====== ====== ======
</TABLE>
In December 1993, the Corporation sold $351,460,000 of securities, which
created an account receivable from various brokers of $152,358,000. The entire
amount of this receivable was collected in January 1994.
At December 31, 1993 and 1992, securities in the amount of $285,543,000 and
$226,323,000, respectively, were pledged to secure public deposits, as
collateral for borrowings, to qualify for fiduciary powers and for other
purposes.
5. LOANS
The following is an analysis of the composition of the loan portfolio.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Private banking:
Residential real estate
mortgages....................... $ 699,193 $ 612,142 $ 449,270 $ 353,663 $ 298,860
Other.............................. 416,922 319,233 300,859 308,071 339,028
---------- ---------- ---------- ---------- ----------
Total private banking loans..... 1,116,115 931,375 750,129 661,734 637,888
---------- ---------- ---------- ---------- ----------
Short-term trust credit
facilities*........................ 211,741 259,729 321,270 341,511 337,963
Loans to financial institutions for
purchasing and carrying
securities......................... 57,505 52,652 49,982 20,967 28,103
All other............................ 13,362 16,705 42,264 35,952 74,826
---------- ---------- ---------- ---------- ----------
Total........................... $1,398,723 $1,260,461 $1,163,645 $1,060,164 $1,078,780
========== ========== ========== ========== ==========
</TABLE>
- ---------------
* The Trust Company provides short-term credit facilities to certain of its
trust customers in anticipation of receiving interest and dividends due from
investments under administration and custody agreements. The Trust Company has
never experienced a credit loss as a result of these arrangements.
Approximately 86% of the December 31, 1993 short-term trust credit facilities
were repaid on the next business day.
II-F-10
<PAGE> 138
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate outstanding principal amounts of non-accrual and restructured
loans follow:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Private banking non-accrual loans.......... $4,929 $7,498 $ 9,194 $ 5,054 $ 1,356
All other non-accrual and restructured
loans.................................... 1,076 1,103 10,304 11,058 28,532
------ ------ ------- ------- -------
Total................................. $6,005 $8,601 $19,498 $16,112 $29,888
====== ====== ======= ======= =======
</TABLE>
The effect of these loans on interest income is presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1993 1992 1991
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income which would have been earned under original terms... $689 $648 $1,748
Interest income recognized during year.............................. 264 276 473
---- ---- ------
Reduction in interest income................................... $425 $372 $1,275
==== ==== ======
</TABLE>
An analysis of real estate acquired in debt restructurings follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Private banking..................... $ 3,101 $ 3,291 $ 840 $ 240 $ 147
All other........................... 8,441 10,386 8,375 9,108 7,192
------- ------- ------ ------ ------
Total.......................... $11,542 $13,677 $9,215 $9,348 $7,339
======= ======= ====== ====== ======
</TABLE>
6. ALLOWANCE FOR CREDIT LOSSES
An analysis of the allowance for credit losses follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1.................................... $11,676 $ 8,661 $ 8,599
------- ------- -------
Charge-offs........................................... (4,100) (3,566) (6,285)
Recoveries............................................ 1,817 581 322
------- ------- -------
Net charge-offs....................................... (2,283) (2,985) (5,963)
Provision charged to income........................... 4,000 6,000 6,025
------- ------- -------
Balance, December 31.................................. $13,393 $11,676 $ 8,661
======= ======= =======
</TABLE>
II-F-11
<PAGE> 139
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PREMISES AND EQUIPMENT
An analysis of premises and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................... $ 1,000 $ 1,000
Building....................................................... 12,140 12,127
Leasehold improvements......................................... 93,115 88,378
Furniture and equipment........................................ 62,776 52,280
-------- --------
169,031 153,785
Less accumulated amortization and depreciation................. 59,264 51,705
-------- --------
Total..................................................... $109,767 $102,080
======== ========
Amortization and depreciation expense.......................... $ 11,952 $ 10,669
======== ========
</TABLE>
Amortization and depreciation expense amounted to $10,062,000 for 1991.
8. FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
OTHER BORROWINGS AN ANALYSIS OF BORROWINGS FOLLOWS:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal funds purchased:
Year-end balance................................... $ 31,535 $ 70,945 $ 45,775
Daily average balance.............................. 151,005 253,446 147,888
Maximum end-of-month balance....................... 470,325 812,810 257,870
Weighted average interest rate during year......... 3.12% 3.78% 5.62%
Weighted average interest rate at year-end......... 3.00 2.04 4.01
Securities sold under agreements to repurchase:
Year-end balance................................... $189,679 $134,473 $387,657
Daily average balance.............................. 187,868 192,733 207,662
Maximum end-of-month balance....................... 305,249 378,146 387,657
Weighted average interest rate during year......... 2.82% 3.26% 5.64%
Weighted average interest rate at year-end......... 2.86 2.91 3.69
Other borrowings:
Year-end balance................................... $ 36,858 $ 19,877 $ 40,349
Daily average balance.............................. 17,326 20,327 16,171
Maximum end-of-month balance....................... 37,716 101,138 40,349
Weighted average interest rate during year......... 2.88% 2.45% 5.40%
Weighted average interest rate at year-end......... 2.59 3.97 3.75
</TABLE>
Federal funds purchased and securities sold under agreements to repurchase
generally are overnight borrowing transactions.
II-F-12
<PAGE> 140
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The Corporation adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," ("FAS 109") retroactive to January 1, 1992.
FAS 109 requires, among other things, that an asset and liability approach be
applied to accounting for income taxes and that the recognition of deferred tax
assets be evaluated using a "more likely than not" realizability criterion. As a
result of adopting FAS 109, first quarter and full year 1992 net income was
increased by $4.6 million ($.47 per share).
Since the Corporation did not restate its 1991 financial statements for the
effects of FAS 109, the following disclosures have been prepared using two
different accounting principles. The disclosures for 1993 and 1992 have been
prepared under the provisions of FAS 109. Disclosures for 1991 have been
prepared under the guidelines set forth in Accounting Principles Board Opinion
No. 11, the predecessor of FAS 109.
The components of the provision for income tax expense that are
attributable to income from operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $16,280 $10,543 $ 9,684
State and local..................................... 12,318 10,957 9,088
------- ------- -------
Total current income taxes....................... 28,598 21,500 18,772
------- ------- -------
Deferred:
Federal............................................. 2,180 2,205 (1,308)
State and local..................................... (360) (1,316) (40)
------- ------- -------
Total deferred income taxes...................... 1,820 889 (1,348)
------- ------- -------
Total............................................ $30,418 $22,389 $17,424
======= ======= =======
</TABLE>
Deferred income tax provisions (benefits) that are attributable to income
from operations resulted from:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Alternative minimum tax............................... $ 2,563 $ 3,718 $(1,356)
Depreciation expense.................................. 2,999 1,593 2,835
Other real estate..................................... 1,554 107 (2,170)
Deferred compensation................................. (3,941) (3,012) (1,432)
Provision for credit losses........................... (706) (1,367) 69
Trust and fiduciary activities........................ (337) (499) (1,081)
Retirement plans...................................... 63 (236) 1,651
Federal tax rate change............................... (403) -- --
Other, net............................................ 28 585 136
------- ------- -------
Total............................................ $ 1,820 $ 889 $(1,348)
======= ======= =======
</TABLE>
II-F-13
<PAGE> 141
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the Federal statutory income tax rate with the
Corporation's effective income tax rate attributable to income from operations
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1993 1993 1992 1992 1991 1991
------- ---- ------- ---- ------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. Federal income tax rate... $25,440 35.0% $20,033 34.0% $16,594 34.0%
Increase (decrease) in effective rate
resulting from:
Tax-exempt interest income.......... (2,466) (3.4) (3,562) (6.0) (4,846) (9.9)
State and local taxes, net of
Federal income tax benefit....... 7,773 10.7 6,363 10.8 5,972 12.2
Alternative minimum tax............. -- -- -- -- (1,356) (2.8)
Miscellaneous items................. (329) (0.5) (445) (0.8) 1,060 2.2
------- ---- ------- ---- ------- ----
$30,418 41.8% $22,389 38.0% $17,424 35.7%
======= ==== ======= ==== ======= ====
</TABLE>
The components of income tax expense for the years ended December 31, 1993
and 1992 that are attributable to income from operations, cumulative effect of
changes in accounting principles and stockholders' equity follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1993 1992
------- --------
(IN THOUSANDS)
<S> <C> <C>
Income from operations.......................................... $30,418 $ 22,389
Cumulative effect of changes in accounting principles:
Adoption of FAS 106........................................... -- (10,579)
Adoption of FAS 109........................................... -- (4,609)
Stockholders' equity:
Adoption of FAS 115........................................... 7,814 --
Tax benefit on dividends paid to the ESOP on unallocated
shares..................................................... (683) (507)
------- --------
Total...................................................... $37,549 $ 6,694
======= ========
</TABLE>
II-F-14
<PAGE> 142
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax (asset) as of December 31, 1993 and
1992 follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax (assets):
Deferred compensation........................................ $(14,880) $(10,751)
Trust and fiduciary activities............................... (9,239) (8,750)
Retirement plans............................................. (6,332) (5,863)
Allowance for credit losses.................................. (6,186) (5,382)
Leasing transactions......................................... (3,400) (3,400)
Other real estate............................................ (1,232) (2,793)
Alternative minimum tax...................................... -- (2,563)
Other........................................................ (1,427) (1,642)
-------- --------
(42,696) (41,144)
-------- --------
Deferred tax liabilities:
Premises and equipment....................................... 18,012 14,757
Other........................................................ 494 780
-------- --------
Net deferred tax (asset).................................. $(24,190) $(25,607)
======== ========
</TABLE>
The income tax effect of securities gains, net was $1,433,000, $1,304,000
and $725,000 in 1993, 1992 and 1991, respectively.
10. LONG TERM DEBT
Long term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
8 1/2% Capital Notes due 2001.................................... $12,453 $14,103
8.35% Senior Unsecured ESOP Notes due 1999....................... 18,697 21,029
8% Notes due 1996................................................ 29,950 29,950
Federal Home Loan Bank Borrowings................................ 4,000 --
------- -------
Total....................................................... $65,100 $65,082
======= =======
</TABLE>
The capital notes were issued by the Trust Company, and are subordinated to
deposits and certain other liabilities. The capital notes require annual sinking
fund payments of $1,650,000; and are redeemable in whole or in part, at the
option of the Trust Company, subject to the approval of any bank supervisory
authority having jurisdiction, at an initial redemption price of 104.25% of the
principal amount, decreasing to 100% of the principal amount in 1996 and
thereafter, together with accrued interest.
The 8.35% Senior Unsecured ESOP Notes due 1999 ("ESOP Notes") are
obligations of the Corporation that require annual payments of principal and
interest. The Corporation loaned the proceeds from the ESOP Notes to the trust
established to administer the 401(k) Plan and ESOP of United States Trust
Company of New York and Affiliated Companies ("401(k) Plan") on the same terms.
The 401(k) Plan used the proceeds
II-F-15
<PAGE> 143
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to purchase 690,498 shares of common stock from the Corporation's treasury stock
holdings for an Employee Stock Ownership Plan ("the ESOP"). The ESOP Notes are
collateralized by the unallocated shares of the Corporation's common stock held
by the ESOP. The ESOP Notes call for principal repayments amounting to
$2,526,000, $2,737,000, $2,966,000, $3,213,000 and $3,482,000, payable annually
on February 1, 1994, through February 1, 1998. Based upon the anticipated
February 1, 1994 loan payment, 69,075 shares of common stock were allocated to
ESOP participants as of December 31, 1993, bringing the total number of
allocated shares to 345,124.
The 8% notes are unsecured and unsubordinated obligations of the
Corporation. They are not redeemable or callable by, or at the option of, the
Corporation at any time.
The Federal Home Loan Bank ("PHIL") borrowings represent four separate
drawings of $1 million each, with maturity dates between 1995 and 1999. The PHIL
borrowings bear interest ranging between 5.56% and 6.43%. Each PHIL borrowing is
collateralized by the pledge of qualifying assets.
11. STOCKHOLDERS' EQUITY
At the Annual Meeting of Shareholders on April 27, 1993, the shareholders
approved an amendment to the Certificate of Incorporation which reduced the par
value of the Corporation's common stock from $5.00 per share to $1.00 per share.
Effective as of that date $45,537,000 was transferred from the Common Stock
account to the Capital Surplus account. In addition, the shareholders approved
an increase in the Corporation's authorized common shares to 40 million from 20
million. Neither of these actions had any effect on the total amount of
Stockholders' Equity.
In April 1992, the Corporation's Board of Directors approved a 1.0 million
common stock buyback program. This was in addition to the 2.7 million common
stock buyback program that had been previously approved. Through December 31,
1993, 2,941,787 shares of common stock have been repurchased in the open market
at an average cost of $39.54 per share. Of the total common shares repurchased,
157,500 common shares were purchased in 1993 at a total cost of $8.5 million.
The Corporation is authorized to issue up to 5.0 million, $1.00 par value,
preferred shares as of December 31, 1993. No preferred shares have been issued.
The Corporation's banking subsidiaries are subject to limitations on the
amount of dividends they can pay to the Corporation without prior approval of
the bank regulatory authorities. Under this limitation, the banking subsidiaries
can declare, in aggregate, dividends in 1994 without approval of the regulatory
authorities of approximately $27.4 million, plus an additional amount equal to
the banking subsidiaries' net income for 1994 as of the dividend declaration
date. In addition, in 1992 the Trust Company applied for, and was granted
permission by the Federal Reserve Bank of New York, authority to pay a special
dividend to the Corporation of up to $50.0 million. Under this special
authority, the Trust Company has paid dividends to the Corporation of $5.0
million in 1993 and $25.0 million in 1992.
12. CONTINGENCIES
There are various pending and threatened actions and claims against the
Corporation and its subsidiaries in which the Corporation has denied any
liability and which it will vigorously contest. Management, after consultation
with counsel as to the foregoing matters, is of the opinion that the ultimate
resolution of such matters is unlikely to have any future material effect on the
Corporation's financial position.
II-F-16
<PAGE> 144
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation enters into various
transactions involving off-balance sheet financial instruments to meet the needs
of its customers and to reduce its own exposure to fluctuations in interest
rates. These transactions are subject to varying degrees of market and credit
risk. As compensation for the risks assumed, these instruments generate interest
or fee revenue or expense. The controls used to monitor the credit and market
risks of off-balance sheet financial instruments are consistent with those
associated with the Corporation's on-balance sheet activities.
Credit-Related Financial Instruments
Credit-related financial instruments include firm commitments to extend
credit ("commitments"), standby letters of credit ("standbys") and
indemnifications in connection with securities lending activities ("securities
lending"). The credit risk associated with these instruments varies depending on
the creditworthiness of the customer and the value of the collateral held, if
any. Collateral requirements vary by type of instrument. The contractual amounts
of these instruments represent the amounts at risk should the contract be fully
drawn upon and the client default, with all collateral being worthless.
Commitments are legally binding agreements to lend to a customer that
generally have fixed expiration dates or other termination clauses, may require
payment of a fee and are not secured by collateral until funds are advanced. The
Corporation evaluates each customer's creditworthiness on a case-by-case basis
prior to approving a commitment or advancing funds under a commitment and
determining the related collateral requirement. Collateral held includes
marketable securities, real estate mortgages or other assets. The majority of
the Corporation's commitments are related to mortgage lending to private banking
clients and backup lines or credit for various financial institutions. The
mortgage lending commitments are generally expected to be utilized, while the
backup lines of credit typically expire unused. Commitments totaled $129.6
million and $153.1 million at December 31, 1993 and 1992, respectively.
Standbys are conditional commitments issued by the Corporation to guarantee
the performance of a customer to a third party. Those guaranties are issued to
satisfy margin requirements incurred by investment banking and broker/dealer
companies for their activities conducted on organized exchanges, to guarantee
performance under lease and other agreements by professional business
corporations and for other purposes. The credit risk involved in issuing
standbys is essentially the same as that involved in extending loans. Standbys
outstanding at December 31, 1993 and 1992 amounted to $113.5 million and $122.5
million, respectively. Collateral is obtained based on management's credit
assessment of the counterparty. At December 31, 1993, $92.7 million of the
standbys outstanding were partially or fully secured by collateral consisting of
cash, marketable equity securities, marketable debt securities (including
corporate and U.S. Treasury debt securities) and other assets, compared with
$82.5 million at December 31, 1992. Approximately 54% of the standbys
outstanding at December 31, 1993 expire within one year compared with
approximately 47% at December 31, 1992.
The Trust Company has established a program through which participating
trust customers may lend their securities to counterparties. In certain cases,
the Trust Company indemnifies the trust customer for losses if the counterparty
defaults and the collateral received is insufficient to compensate for the loss
of the loaned securities. Collateral value is monitored daily and additional
collateral is obtained when appropriate. Securities lending obligations subject
to the Trust Company's indemnification amounted to $1,231.1 million at December
31, 1993 and $814.7 million at December 31, 1992. Collateral, principally cash,
held against these security lending obligations totaled $1,253.2 million and
$828.2 million, respectively, at December 31, 1993 and 1992, respectively.
II-F-17
<PAGE> 145
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Derivative Financial Instruments
From time to time, the Corporation utilizes derivative financial
instruments, such as interest rate swap agreements ("swap agreements") and
forward rate agreements ("FRAs") to hedge its fixed rate loan portfolio as part
of its overall asset and liability management process. The market values
associated with these instruments can vary depending on movements in interest
rates. The measurement of the market risks associated with these instruments is
meaningful only when all related and offsetting transactions are identified. The
notional or contractual amounts of these instruments are indications of the
volume of transactions and do not necessarily represent amounts at risk. The
amounts at risk upon default are generally limited to the unrealized market
valuation gains of the instruments and will vary based on changes in interest
rates. The risk of default depends on the creditworthiness of the counterparty
to the instrument. The Corporation evaluates the creditworthiness of its
counterparties as part of its normal credit review procedures.
At December 31, 1993 and 1992, the Corporation was a counterparty to swap
agreements with a total notional principal amount of $103 million and $94
million, respectively. Swap agreements involve the exchange of fixed and
floating rate interest payment obligations computed on notional principal
amounts. The Corporation enters into swap agreements with counterparties as a
principal. Outstanding swap agreements had a weighted average maturity of
approximately 19 months at December 31, 1993 and 23 months at December 31, 1992.
FRAs involve the exchange of net interest differentials calculated as the
difference between a contractual interest rate and a market interest rate
determined on the contract's settlement date. At December 31, 1993, the
Corporation was a party to FRAs with a total notional principal amount of $150
million, compared with a total notional principal amount of $175 million
outstanding at December 31, 1992. Outstanding FRAs had a weighted average
maturity of approximately 90 days at both December 31, 1993 and 1992.
14. RENTAL COMMITMENTS ON PREMISES AND EQUIPMENT
Substantially all of the Corporation's operations are conducted from
premises that are leased. The initial lease periods expire between 1994 and
2016. The lease for the Corporation's headquarters building expires in 2014 and
is renewable at the Corporation's option for two successive terms of 10 years
each at the then current market rate. In addition, the Corporation leases data
processing equipment under leases with expiration dates ranging from two to
seven years. Management expects that in the normal course of business most
leases will be renewed or replaced by other leases.
Rent expense on operating leases for the years 1993, 1992 and 1991, net of
sublease rentals, was $35,799,000, $35,021,000 and $35,269,000, respectively.
Operating lease rent expense includes adjustments amounting to $2,584,000 in
1993, $2,222,000 in 1992 and $3,598,000 in 1991 for increases in real estate
taxes, labor costs and certain operating expenses of the landlords, net of
similar adjustments applied on sublease rentals.
II-F-18
<PAGE> 146
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of future minimum rental and sublease payments
that have noncancelable lease terms in excess of one year as of December 31,
1993:
<TABLE>
<CAPTION>
MINIMUM
MINIMUM RENTALS NET
MINIMUM SUBLEASE OF SUBLEASE
RENTALS RENTALS RENTALS
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Year Ending December 31:
1994.............................................. $ 26,846 $200 $ 26,646
1995.............................................. 27,581 183 27,398
1996.............................................. 27,379 -- 27,379
1997.............................................. 25,980 -- 25,980
1998.............................................. 25,302 -- 25,302
Later years....................................... 272,745 -- 272,745
-------- ---- --------
Total minimum payments required................ $405,833 $383 $405,450
======== ==== ========
</TABLE>
The foregoing minimum rental amounts include, and are subject to
escalations based upon increases in certain operating expenses incurred by the
lessors.
II-F-19
<PAGE> 147
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. RETIREMENT PLAN
The following table details the components of pension expense (credit) and
the funded status of the Corporation's qualified and non-qualified retirement
plans and the major assumptions used to determine these amounts.
<TABLE>
<CAPTION>
QUALIFIED PLAN NON-QUALIFIED PLAN
------------------------------ ---------------------------
1993 1992 1991 1993 1992 1991
-------- -------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Components of pension expense
(credit):
Service cost...................... $ 5,072 $ 4,267 $ 3,520 $ 260 $ 157 $ 134
Interest cost..................... 9,212 8,313 7,379 355 396 308
Actual return on plan assets...... (31,233) (15,892) (36,051) -- -- --
Net amortization and deferral..... 15,189 821 21,656 110 191 148
-------- -------- -------- ------- ------- -------
Net pension expense (credit)... $ (1,760) $ (2,491) $ (3,496) $ 725 $ 744 $ 590
======== ======== ======== ======= ======= =======
Funded status of retirement plans:
Plan assets, at market value...... $194,141 $167,180 $155,241 $ -- $ -- $ --
Actuarial present value of benefit
obligations:
Accumulated benefit
obligations:
Vested....................... 99,757 78,468 66,265 2,684 1,749 1,185
Non-vested................... 7,519 6,559 5,816 209 205 159
-------- -------- -------- ------- ------- -------
Total..................... 107,276 85,027 72,081 2,893 1,954 1,344
Provision for future salary
increases.................... 18,370 17,916 16,450 2,130 2,626 2,437
-------- -------- -------- ------- ------- -------
Projected benefit
obligations.................. 125,646 102,943 88,531 5,023 4,580 3,781
-------- -------- -------- ------- ------- -------
Excess of plan assets over
projected benefit
obligations.................... 68,495 64,237 66,710 (5,023) (4,580) (3,781)
Unrecognized cumulative net losses
(gains)........................ (32,072) (27,366) (29,207) 1,283 1,459 1,342
Prior service cost not yet
recognized in periodic pension
costs.......................... 1,786 1,976 1,252 245 270 280
Unrecognized net liability (asset)
at date of initial
application.................... (19,189) (21,588) (23,986) 414 466 517
-------- -------- -------- ------- ------- -------
Prepaid (accrued) pension
cost......................... $ 19,020 $ 17,259 $ 14,769 $(3,081) $(2,385) $(1,642)
======== ======== ======== ======= ======= =======
Major assumptions at year-end (1):
Discount rate..................... 7.5% 8.5% 9.0% 7.5% 8.5% 9.0%
Rate of increase in
compensation................... 4.5% 5.5% 6% 4.5% 5.5% 6%
Expected rate of return on plan
assets......................... 9% 9% 9% 9% 9% 9%
</TABLE>
- ---------------
(1) The pension expense (credit) is determined using the assumptions as of the
beginning of the year. The funded status is determined using the assumptions
as of the end of the year.
The Corporation uses the projected unit credit cost method to compute the
vested benefit obligation, where the vested benefit obligation is the actuarial
present value of the vested benefits to which the employee is entitled based on
the employee's expected date of separation or retirement.
II-F-20
<PAGE> 148
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. INCENTIVE COMPENSATION PLANS
The Corporation sponsors a 401(k) Plan and ESOP covering all employees who
satisfy a one year service requirement. The 401(k) Plan provides that, depending
upon the Corporation satisfying certain profitability criteria and other
factors, eligible employees receive annual awards calculated as a percentage of
such employees' compensation. Awards to senior officers are calculated under the
provisions of the Annual Incentive Plan ("AIP"), while awards to non-senior
officers and other employees are governed by the terms of the Incentive Award
Plan ("IAP"). Awards under either the AIP or IAP plan are comprised of an ESOP
award, which is mandatorily contributed to the 401(k) Plan, and of an elective
award, which may be taken in cash or, subject to certain limitations, deferred
and contributed to the 401(k) Plan. Total incentive awards were $26.0 million,
$23.8 million and $19.0 million in 1993, 1992 and 1991, respectively.
The Corporation's 1989 Stock Compensation Plan ("the 1989 Plan") governs
the granting of stock option, restricted common stock and Long-Term Performance
("LTPP") awards to eligible employees. The 1989 Plan, as amended in April 1992,
authorizes the issuance of a maximum of 1.3 million common shares plus common
shares previously authorized but not utilized under certain predecessor stock
compensation plans. At December 31, 1993, the Corporation had 561,307 shares of
common stock available for issuance as restricted stock awards, incentive stock
options, non-qualified stock options and performance share units.
Under the 1989 Plan, the Corporation may award either incentive stock
options or non-qualified stock options. The options expire ten years from the
date of grant and their exercise price is not less than the fair value of a
common share on the date of grant. In 1989, the shareholders of the Corporation
approved the Stock Option Plan for Non-Employee Directors of U.S. Trust
Corporation ("the Directors Plan"). The Directors Plan provides for the granting
of non-qualified options to non-employee directors, as defined in the Directors
Plan. The Directors Plan authorizes the issuance of a maximum of 125,000 shares
of common stock. The options expire ten years from the date of grant and their
exercise price is not less than the fair value of a common share on the date of
grant.
The following is a combined summary of option transactions which occurred
under the 1989 Plan and the Directors Plan during 1993, 1992 and 1991.
<TABLE>
<CAPTION>
SHARES
UNDER OPTION PRICE
OPTION PER SHARE
--------- --------------
<S> <C> <C>
Balance, January 1, 1991.................................. 1,239,920 $ 9.22 - 42.13
Granted................................................. 10,000 29.58 - 35.45
Exercised or cancelled.................................. (61,787) 9.22 - 42.13
--------- --------------
Balance, December 31, 1991................................ 1,188,133 16.72 - 42.13
Granted................................................. 210,000 44.75 - 49.63
Exercised or cancelled.................................. (145,735) 16.72 - 44.75
--------- --------------
Balance, December 31, 1992................................ 1,252,398 16.72 - 49.63
Granted................................................. 179,200 53.88
Exercised or cancelled.................................. (144,425) 16.72 - 53.88
--------- --------------
Balance, December 31, 1993................................ 1,287,173 $19.00 - 53.88
========= ==============
</TABLE>
Options exercisable at December 31, 1993 and 1992 amounted to 750,121
shares and 668,293 shares, respectively.
II-F-21
<PAGE> 149
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Awards of restricted common stock to key executives are contingent upon
their continued employment, generally between two to seven years. The fair value
of the shares at the date of grant is recorded as compensation expense over the
restriction period. At December 31, 1993, a total of 100,608 shares with an
unamortized cost of $1,594,000 were outstanding with restrictions. During 1993,
28,500 shares with an aggregate fair value at their date of grant of
approximately $1,536,000 were awarded. The expense recognized for the plan
amounted to $1,465,000 in 1993, $1,240,000 in 1992 and $1,259,000 in 1991.
LTPP awards are calculated as a percentage of such officers' compensation
to the extent that certain goals defined in the plan are met. The Corporation
provided for awards of $4,222,000, $3,691,000 and $1,984,000 under the LTPP in
the years 1993, 1992 and 1991. LTPP awards are based upon three-year cycles.
Awards are charged to expense over the three-year cycle based upon earnings
projections.
17. HEALTH CARE AND LIFE INSURANCE BENEFITS
The Corporation provides certain health care and life insurance benefits
for all employees, certain qualifying retired employees and their dependents.
The Corporation adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
("FAS 106") retroactive to January 1, 1992, using the immediate recognition
method. FAS 106 requires that employers accrue, during the years that the
employee renders service, the expected cost of providing health care and life
insurance and other benefits to an employee upon retirement. Under the immediate
recognition transition method, the accumulated postretirement benefit obligation
of $23.0 million, net of deferred taxes of $10.6 million, was charged against
first quarter 1992 net income. In addition, employee benefits expense was
increased by $2.2 million ($1.4 million after taxes) reflecting the ongoing
impact of FAS 106. The increased expense was charged evenly to each of the four
quarters of 1992.
Effective January 1, 1993, the Corporation's postretirement health care
plans were amended to change the health care insurance cost-sharing formula for
retirees and their qualified dependents. Under the revised cost-sharing formula,
the Corporation will not absorb any insurance premium cost increases after 1999.
The impact of this amendment ($8.5 million reduction in the accumulated
postretirement benefit obligation) is being amortized over the estimated
remaining service lives of the affected employee group of 11 years, commencing
in 1993.
The following tables detail the components of expense for the Corporation's
unfunded postretirement health care and life insurance plans and the composition
of the accumulated postretirement benefit obligation.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1993 1992
--------------------------- --------------------------
HEALTH LIFE TOTAL HEALTH LIFE TOTAL
------- ------- ------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Components of postretirement benefit
expense:
Service cost.......................... $ 436 $ 109 $ 545 $ 915 $ 102 $ 1,017
Interest cost......................... 1,099 465 1,564 1,704 331 2,035
Amortization of prior service cost.... (771) -- (771) -- -- --
Amortization of loss.................. -- 97 97 -- -- --
------- ------- ------- ------- ------ -------
Net postretirement benefit
expense.......................... $ 764 $ 671 $ 1,435 $ 2,619 $ 433 $ 3,052
======= ======= ======= ======= ====== =======
</TABLE>
II-F-22
<PAGE> 150
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1993 1992
--------------------------- --------------------------
HEALTH LIFE TOTAL HEALTH LIFE TOTAL
------- ------- ------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Composition of accumulated
postretirement benefit obligation:
Retirees (including covered
dependents)........................ $ 4,252 $ 4,234 $ 8,486 $ 5,390 $1,994 $ 7,384
Fully eligible active employees....... 3,209 926 4,135 2,381 713 3,094
Other active employees................ 8,237 2,039 10,276 5,455 1,635 7,090
------- ------- ------- ------- ------ -------
Total obligation................... 15,698 7,199 22,897 13,226 4,342 17,568
Unrecognized prior service cost
amendment............................. 7,713 -- 7,713 8,484 -- 8,484
Unrecognized net (loss)................. (1,659) (3,599) (5,258) (123) (725) (848)
------- ------- ------- ------- ------ -------
Accrued (liability)................... $21,752 $ 3,600 $25,352 $21,587 $3,617 $25,204
======= ======= ======= ======= ====== =======
</TABLE>
- ---------------
(1) The postretirement benefit expense is determined using the assumptions as of
the beginning of the year. The accumulated postretirement benefit obligation
is determined using the assumptions as of the end of the year.
The assumed rate of future increases in per capita cost of health care
benefits (the health care cost trend rate) is 14% in 1994, decreasing gradually
to 6% in the year 2009. An increase in the health care cost trend rate by 1%
will increase the annual net postretirement benefit expense by approximately
$60,000 and the accumulated postretirement benefit obligation by approximately
$890,000.
A weighted average discount rate of 7.5% was used at December 31, 1993 to
measure the accumulated postretirement benefit obligation.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," ("FAS 107") requires the disclosure of the
estimated fair values of financial instruments. Substantially all of the
Corporation's assets, liabilities and off-balance sheet products are considered
financial instruments as defined by FAS 107. Fair value is defined as the price
at which a financial instrument could be liquidated in an orderly manner over a
reasonable time period under present market conditions.
FAS 107 requires that the fair value of financial instruments be estimated
using various valuation methodologies. Quoted market prices, when available, are
used as the measure of fair value. Where quoted market prices are not available,
fair values have been estimated using primarily discounted cash flow analyses
and other valuation techniques. These derived fair values are significantly
affected by assumptions used, principally the timing of future cash flows and
the discount rate. Because assumptions are inherently subjective, the estimated
fair values cannot be substantiated by comparison to third party evidence and
may not be indicative of the value that could be realized in a sale or
settlement of the financial instrument.
The relevance of this information is also severely constrained because FAS
107 provides only a partial estimate of the fair value of the Corporation. The
FAS 107 disclosures do not provide an estimated fair value of the various
ongoing businesses in which the Corporation operates. For example, FAS 107
specifically excludes the fair value of certain fee generating businesses, the
value of long-term trust relationships and anticipated future business
activities from its scope.
II-F-23
<PAGE> 151
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A discussion of the fair value estimation methodologies used for material
financial instruments follows.
Loans
The estimated fair value of the Corporation's performing fixed rate loans
(primarily residential real estate mortgages) was calculated by discounting
contractual cash flows adjusted for current prepayment estimates. The discount
rates were based on the interest rates charged to current customers for
comparable loans. The Corporation's performing adjustable rate loans reprice
frequently at current market rates. Therefore, the fair value of these loans has
been estimated to be approximately equal to their carrying amount. Estimated
fair value for nonperforming loans was based upon a discounted estimated cash
flow method and, for residential real estate mortgage loans, current appraisals.
The discount rate used was commensurate with the risk associated with the
estimated cash flows. See "Notes to the Consolidated Financial Statements No. 5"
for additional discussion of the Corporation's entire loan portfolio.
Securities
The estimated fair value of securities is based upon quoted bid market
prices, where available, or fair value quotes obtained from third party pricing
services. See "Notes to the Consolidated Financial Statements No. 4" for
additional discussion of securities.
Long Term Debt
The estimated fair value of long term debt was calculated using a
discounted cash flow method, where the estimated cash flows considered
contractual principal and interest payments, as well as required sinking fund
payments. The discount rate used consisted of two components. First, the credit
risk spread was determined for each debt issue i.e., the spread that the
Corporation paid over the comparable risk-free rate at the date of issuance. The
credit risk spread was added to the current risk-free market interest rate for
the comparable remaining maturity. See "Notes to the Consolidated Financial
Statements No. 10" for additional discussion of long term debt.
A comparison of the fair value and carrying amounts of the Corporation's
significant on-balance sheet financial instruments follows.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1993 1992
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Loans......................................... $1,385* $1,404 $1,249* $1,260
Securities:
Available for sale.......................... 820** 837 -- --
Held to maturity............................ 87 87 -- --
Investment.................................. -- -- 1,196 1,222
Long term debt................................ 65 70 65 69
</TABLE>
- ---------------
* Net of allowance for credit losses.
** Represents the amortized cost of securities available for sale, which is
different from the estimated fair value basis of accounting at which they are
reported in the Consolidated Statement of Condition.
II-F-24
<PAGE> 152
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest Rate Swap Agreements
The Corporation is a net fixed rate payor under its interest rate swap
agreements ("swap agreements") and at December 31, 1993 and 1992 had a net
payable of $468,000 and $537,000, respectively. Swap agreements are used as a
hedge of the Corporation's funding of various fixed rate interest earning
assets. The estimated fair value of swap agreements are obtained from dealer
quotes. These values represent the estimated amount that the Corporation would
have to pay to terminate the swap agreements, taking into account current
interest rates and, when appropriate, the current creditworthiness of the
counterparties. See "Notes to the Consolidated Financial Statements No. 13" for
additional discussion of swap agreements.
Forward Rate Agreements
Forward rate agreements ("FRAs") are used as a hedge of the Corporation's
short-term interest earning assets. The estimated fair value of FRAs are
obtained from dealer quotes. The fair value of FRAs at December 31, 1993 and
1992 was nominal. See "Notes to the Consolidated Financial Statements No. 13"
for additional discussion of FRAs.
A comparison of the fair value and notional amounts of the Corporation's
significant off-balance sheet financial instruments follows.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1993 1992
------------------ ------------------
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE VALUE VALUE
-------- ----- -------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest rate swap agreements.................... $103 $(4.0) $ 94 $(6.6)
Forward rate agreements.......................... 150 0.1 175 0.1
</TABLE>
Other Financial Instruments
The Corporation's other financial instruments are generally short-term in
nature and contain very little credit risk. These instruments consist of cash
and due from banks, interest bearing deposits with banks, Federal funds sold,
securities purchased under agreements to resell, accrued interest receivable and
accounts receivable, demand deposit liabilities, time deposit liabilities,
Federal fund purchased, securities sold under agreements to repurchase, other
borrowings and accrued interest payable and accounts payable. Consequently,
carrying amounts of these assets and liabilities approximate estimated fair
value.
II-F-25
<PAGE> 153
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. PARENT COMPANY ONLY
Condensed statements of income, condition and cash flows for U.S. Trust
Corporation (Parent Company Only) follow:
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Equity in Net Income (Loss) of Subsidiaries:
Bank............................................. $41,746 $34,046* $30,916
Non-Bank......................................... 1,862 (1,358)* (78)
Interest Income..................................... 2,658 3,228 3,673
Other Income........................................ 1 -- 1
------- ------- -------
Total Income................................ 46,267 35,916 34,512
------- ------- -------
Expenses:
Interest Expense.................................... 4,131 4,182 4,406
Other Expenses...................................... 586 2,240 785
------- ------- -------
Total Expenses.............................. 4,717 6,422 5,191
------- ------- -------
Income Before Income Tax Expense (Benefit)............ 41,550 29,494 29,321
Income Tax Expense (Benefit).......................... (717) 743 (2,062)
------- ------- -------
Net Income............................................ $42,267 $28,751 $31,383
======= ======= =======
</TABLE>
- ---------------
* Equity in Net Income (Loss) of Subsidiaries includes the impact of adopting
FAS 106 and FAS 109.
II-F-26
<PAGE> 154
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Due from Subsidiary.................................................... $ 219 $ 444
Due from Other Banks................................................... 14 212
-------- --------
Total Due from Banks......................................... 233 656
-------- --------
Securities Purchased from Subsidiary Under Agreements to Resell........ -- 19,289
Investment in Subsidiaries at Equity in Net Assets:
Bank................................................................. 229,239 207,645
Non-Bank............................................................. 34,165 18,810
-------- --------
Total Investment in Subsidiaries............................. 263,404 226,455
-------- --------
Loan to Non-Bank Subsidiary............................................ -- 700
Securities:
Available for Sale, at Estimated Fair Value.......................... 24,078 --
Investment (Estimated Fair Value $11,899 in 1992).................... -- 11,136
Other Assets........................................................... 5,590 7,169
-------- --------
Total Assets................................................. $293,305 $265,405
======== ========
LIABILITIES
Short-Term Borrowings.................................................. $ -- $ 5,000
Due to Subsidiary...................................................... 1,500 --
Other Liabilities...................................................... 14,571 12,273
Long Term Debt......................................................... 48,647 50,979
-------- --------
Total Liabilities............................................ 64,718 68,252
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................... 228,587 197,153
-------- --------
Total Liabilities and Stockholders' Equity................... $293,305 $265,405
======== ========
</TABLE>
II-F-27
<PAGE> 155
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992* 1991*
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................... $ 42,267 $ 28,751 $ 31,383
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Equity in Net (Income) of Subsidiaries.............. (43,608) (32,688) (30,838)
Dividends Received from Subsidiaries................ 30,000 43,836 28,476
Deferred Income Taxes............................... (7,612) 4,572 --
Net Change in Accruals, Receivables and Other
Assets........................................... 4,307 622 (403)
Net Change in Accruals, Payables and Other
Liabilities...................................... 6,399 1,193 (1,117)
Other, Net.......................................... 683 508 506
-------- -------- --------
Net Cash Provided by Operating Activities................ 32,436 46,794 28,007
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Subsidiaries.............................. (17,028) (11,900) (9,756)
Net Change in Securities Purchased Under Agreements
to Resell............................................. 19,289 (19,289) --
Investment Securities:
Proceeds from Sales................................. -- 3,778 --
Proceeds from Maturities, Calls and
Mandatory Redemptions............................ 2,234 1,927 --
Purchases........................................... (14,517) -- (3,188)
Net Change in Loans to Subsidiaries...................... 700 (700) 2,250
Principal Payment by ESOP................................ 2,332 2,152 1,986
-------- -------- --------
Net Cash (Used) by Investing Activities.................... (6,990) (24,032) (306)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Loans from Subsidiaries.................... 1,500 -- --
Net Change in Short-Term Borrowings...................... (5,000) 5,000 (8,124)
Repayment of Long Term Debt.............................. (2,332) (2,152) (1,986)
Issuance of Common Stock Under Employee Benefit Plans.... 5,653 3,745 916
Purchases of Treasury Stock.............................. (8,485) (13,277) (3,862)
Dividends Paid........................................... (17,205) (15,570) (14,618)
-------- -------- --------
Net Cash (Used) by Financing Activities.................. (25,869) (22,254) (27,674)
-------- -------- --------
Net Change in Cash and Cash Equivalents.................. (423) 508 27
Cash and Cash Equivalents at January 1................... 656 148 121
-------- -------- --------
Cash and Cash Equivalents at December 31................. $ 233 $ 656 $ 148
======== ======== ========
Income Taxes Paid (Refund) Received...................... $ 5,285 $ (592) $ 1,607
Interest Expense Paid.................................... 4,258 4,392 4,601
</TABLE>
- ---------------
* Certain amounts have been reclassified to conform with the 1993 presentation.
II-F-28
<PAGE> 156
U.S. TRUST CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. QUARTERLY CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
1993 1992
-------------------------------------- ----------------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER* QUARTER* QUARTER*
-------- ------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income........... $ 27,683 $31,588 $27,284 $29,687 $27,887 $29,638 $23,935 $27,428
Provision for Credit Losses... 500 1,000 1,250 1,250 1,500 1,500 1,500 1,500
-------- ------- ------- ------- ------- -------- -------- -------
Net Interest Income After
Provision for Credit
Losses...................... 27,183 30,588 26,034 28,437 26,387 28,138 22,435 25,928
Total Fees and Other Income... 75,714 68,683 67,353 64,213 63,475 61,735 61,586 58,768
-------- ------- ------- ------- ------- -------- -------- -------
Total Operating Income Net of
Interest Expense and
Provision for Credit
Losses...................... 102,897 99,271 93,387 92,650 89,862 89,873 84,021 84,696
Total Operating Expenses...... 87,711 78,328 76,534 72,947 77,248 72,212 71,131 68,941
-------- ------- ------- ------- ------- -------- -------- -------
Income From Operations Before
Income Tax Expense and
Cumulative Effect of
Accounting Changes.......... 15,186 20,943 16,853 19,703 12,614 17,661 12,890 15,755
Income Tax Expense............ 6,038 9,027 7,078 8,275 4,793 6,711 4,898 5,987
-------- ------- ------- ------- ------- -------- -------- -------
Income From Operations Before
Cumulative Effect of
Accounting Changes.......... 9,148 11,916 9,775 11,428 7,821 10,950 7,992 9,768
Cumulative Effect of Changes
in Accounting for
Postretirement Benefits and
Income Taxes................ -- -- -- -- -- -- -- (7,780)
-------- ------- ------- ------- ------- -------- -------- -------
Net Income.................... $ 9,148 $11,916 $ 9,775 $11,428 $ 7,821 $10,950 $ 7,992 $ 1,988
========= ======== ======== ======== ======== ======== ======== =======
Primary Net Income Per Share:
Income From Operations
Before Cumulative Effect
of Accounting Changes..... $ .92 $ 1.20 $ .99 $ 1.16 $ .81 $ 1.13 $ .82 $ 1.02
Cumulative Effect of Changes
in Accounting for
Postretirement Benefits
and Income Taxes.......... -- -- -- -- -- -- -- (.81)
-------- ------- ------- ------- ------- -------- -------- -------
Net Income.................... $ .92 $ 1.20 $ .99 $ 1.16 $ .81 $ 1.13 $ .82 $ .21
========= ======== ======== ======== ======== ======== ======== =======
Fully Diluted Net Income Per
Share:
Income From Operations
Before Cumulative Effect
of Accounting Changes..... $ .92 $ 1.20 $ .99 $ 1.15 $ .80 $ 1.12 $ .81 $ 1.02
Cumulative Effect of Changes
in Accounting for
Postretirement Benefits
and Income Taxes.......... -- -- -- -- -- -- -- (.81)
-------- ------- ------- ------- ------- -------- -------- -------
Net Income.................... $ .92 $ 1.20 $ .99 $ 1.15 $ .80 $ 1.12 $ .81 $ .21
========= ======== ======== ======== ======== ======== ======== =======
</TABLE>
- ---------------
* First, second and third quarter 1992 statements of income have been restated
to reflect the Corporation's adoption of FAS 106 and FAS 109. See Notes 9 and
17 for additional details.
II-F-29
<PAGE> 157
U.S. TRUST CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of U.S. Trust Corporation:
We have audited the accompanying consolidated statements of condition of
U.S. Trust Corporation and Subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1993. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of U.S. Trust
Corporation and Subsidiaries at December 31, 1993 and 1992, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in Notes 9 and 17 to the consolidated financial statements,
U.S. Trust Corporation and Subsidiaries has adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," and Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," retroactive to January 1, 1992.
COOPERS & LYBRAND
New York, New York
January 19, 1994
II-F-30
<PAGE> 158
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------
<S> <C>
2.1 Form of Agreement and Plan of Distribution*
2.2 Form of Contribution and Assumption Agreement*
3.1 Form of Restated Certificate of Incorporation**
3.2 Form of Restated By-laws***
10.1 Form of Post Closing Covenants Agreement*
10.2 Form of Tax Allocation Agreement*
21.1 Subsidiaries of the Company (Not Applicable)
</TABLE>
- ---------------
* Incorporated by reference from the Registration Statement on Form S-4 of The
Chase Manhattan Corporation filed on February 9, 1994.
** Incorporated by reference from Appendix I to the Information Statement
included in this Form 10.
*** Incorporated by reference from Appendix II to the Information Statement
included in this Form 10.
II-2
<PAGE> 159
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF SECTION 12 OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
NEW USTC HOLDINGS CORPORATION
By: /s/ RICHARD E. BRINKMANN
------------------------------------
Name: Richard E. Brinkmann
Title: Senior Vice President and
Comptroller
Date: February 9, 1995
II-3
<PAGE> 160
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- --------- ---------------------------------------------------------------------- --------
<S> <C> <C>
2.1 Form of Agreement and Plan of Distribution*
2.2 Form of Contribution and Assumption Agreement*
3.1 Form of Restated Certificate of Incorporation**
3.2 Form of Restated By-laws***
10.1 Form of Post Closing Covenants Agreement*
10.2 Form of Tax Allocation Agreement*
21.1 Subsidiaries of the Company (Not Applicable)
</TABLE>
- ---------------
* Incorporated by reference from the Registration Statement on Form S-4 of The
Chase Manhattan Corporation filed on February 9, 1995.
** Incorporated by reference from Appendix I to the Information Statement
included in this Form 10.
*** Incorporated by reference from Appendix II to the Information Statement
included in this Form 10.
